A tax lecturer of mine who taught anti-avoidance rules used to refer to ATO public rulings as “toilet paper”, as they only bind the ATO and not taxpayers. No doubt my lecturer would call the ATO’s non-binding website guidance “single-ply toilet paper” at best.
Despite my lecturer, in recent years, the Australian Taxation Office (ATO) has preferred to issue non-binding web guidance instead of binding public rulings. We at Cadena have always been of the strong view that web guidance is a very poor way to administer the complex Australian tax system as it raises fundamental questions like:
- Is this non-binding web guidance retrospective or only from the date of publication?
- Where can I reliably find previous ATO web guidance pages?
- Can I rely on this and be protected from ATO penalties?
- Is the ATO website reliable for professionals to interpret tax laws?
The ATO has a much better product to use, public binding rulings. This explains in detail, the ATO’s formal views on matters that binds the ATO. It does not bind taxpayers, but it is often a useful and well-reasoned foundation to work from.
On 9 November 2023, the ATO published many surprising opinions on the taxation of decentralised finance (DeFi) activities. There are no relevant public rulings on this topic, so many taxpayers and tax practitioners turn to the ATO web guidance as a starting point.
Here is why that may be the wrong approach.
Reasonably Arguable Positions
The Australian tax penalty regime is based on how severe your behaviour was. In general, if you have a reasonably arguable position, you should not be subject to penalties and interest if the ATO, a Court or Tribunal determines that your position is incorrect.
This is a legislative protection for taxpayers. It is found in Schedule 1 to the Taxation Administration Act 1953, section 284-15 defined a reasonably arguable position as:
A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect.
So there are two elements:
- It would be concluded that the position is about as likely to be correct as incorrect; and
- Regard was had to the “relevant authorities”.
The first element requires a balancing of all relevant authorities in coming to a position. These are authorities that are for and against the taken position.
But, what is a relevant authority? Are some authorities irrelevant?
What is a Relevant Authority?
Helpfully, there is a non-exhaustive list of authorities that are relevant that are relevant at the time a position is taken, these are:
- A taxation law;
- Extrinsic material, such as an explanatory memorandum;
- A decision of a court (including foreign courts), the Administrative Appeals Tribunal or a Board of Review (now deprecated); and
- A public ruling.
While the list is not exhaustive, the ATO view in MT 2008/2 on relevant authority assists (which is helpful in a public ruling). The ATO ruling states that:
- A position can be reasonably arguable even when there is no authority aside from legislation.
- A public ruling is a relevant authority, though taking a position adverse to the ruling can still be reasonably arguable.
- Other authorities could include, academic or professional texts.
However private legal or tax opinion from a tax professional is not a relevant authority in the ATO’s view. It is the relevant authorities that the opinion relies on that is critical to the position.
Is ATO Web Guidance a Relevant Authority?
The answer – it is unlikely that the ATO’s website is a relevant authority. We base this vice on the fact that, just as a private legal opinion is not an authority itself, it is the use of relevant authorities that is important to whether a position is reasonably arguable.
If the ATO wanted their view to be a relevant authority, they could simply issue a public ruling. But they choose not to, and instead publish simple explanations of their position with no legal references or sources relied on.
Therefore, we reject the ATO’s non-binding web guidance as a relevant authority for having a reasonably arguable position.
The ATO’s Latest Web Guidance for Crypto Tax
The ATO published new web guidance on 9 November 2023 which has greatly upset the crypto tax industry. For example, some views taken by the ATO are:
- Capital gains can arise by using DeFi, including A1, E2, C2 or H2. No specifics were provided.
- Depositing crypto assets into DeFi lending protocols triggers a CGT event. However does not consider when beneficial ownership is maintained, or when it is a security arrangement under section 106-60 of the Income Tax Assessment Act 1997.
- “wrapping” of a crypto asset triggers CGT always, again with no regard to whether beneficial ownership is maintained or not.
As this is mere non-binding web guidance, you could, as my lecturer said, treat it as toilet paper. It should not be considered a “relevant authority” and instead we can look to foreign court cases, academic opinions and the legislation itself.
What Should Taxpayers Do?
Developing a reasonably arguable position can be enough for some situations, and in others you may seek a private binding ruling instead. It depends on your situation, risk appetite and what you have done.
Taxpayers should definitely not attempt to form a reasonably arguable position, or lodge a private binding ruling, without a tax professional with them. We have had dozens of clients who have already lodged private ruling requests, and the ATO has unsurprisingly relied on their web guidance to determine the ruling in the ATO’s favour.
Finding tax lawyers and accountants who will challenge the ATO views in public rulings or mere web guidance may be difficult – but we certainly do exist. Please contact us here for help.
This material is produced by Cadena Legal, a NSW registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such.