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TAXATION ADMINISTRATION AMENDMENT REGULATIONS 2008 (NO. 3) (SLI NO 179 OF 2008)
Issued by authority of the Assistant Treasurer
Taxation Administration Act 1953
Taxation Administration Amendment Regulations 2008 (No. 3)
Section 18 of the Taxation Administration Act 1953 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.
Subsection 359-40(1) of Schedule 1 to the Act provides that if making a private ruling would require determining the value of any thing, the Commissioner of Taxation (the Commissioner) may refer the making of a valuation to a valuer, or refer a valuation provided by the applicant for a private ruling (the applicant) to a valuer for review. Subsection 359-40(4) provides that the Commissioner may charge the applicant an amount in accordance with the regulations for the valuer making or reviewing the valuation.
The purpose of the Regulations is to amend the Taxation Administration Regulations 1976 to establish the framework to allow the Commissioner to charge an applicant the cost of a valuer to make or review a valuation under subsection 359-40(4) of the Act.
The Australian Taxation Office (the Tax Office) does not charge for their services in making a private ruling. However, where, as part of a private ruling, the Commissioner refers a valuation to a valuer, the Regulations would allow the Commissioner to charge the applicant an amount equal to the amount the Commissioner was charged for the valuer making or reviewing the valuation.
Under the Regulations, the Commissioner is required to provide an estimate of the charge to the applicant up front. The valuation will not commence until the estimated amount has been paid. If the final cost of the valuation differs from the estimate provided by the Commissioner, the applicant is either charged or refunded the difference, as applicable.
Details of the Regulations are set out in the Attachment.
The Act specified no conditions that needed to be met before the power to make the Regulations was exercised.
The Regulations are to commence on the day after they are registered on the Federal Register of Legislative Instruments.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The details of the Regulations and the explanatory statement
were publicly consulted on for a period of four weeks in 2008. Submissions
from a variety of taxation and valuation entities were received and considered,
along with input from the Australian Taxation Office. However, no material
changes were made to the Regulations or explanatory statement as a result of
public consultation in 2008.
ATTACHMENT
In accordance with subsection 359-40(1) of Schedule 1 to the Taxation Administration Act 1953 ( the Act ), if a private ruling requires the Commissioner to determine the value of any thing, the Commissioner may:
• refer the valuation to a valuer or
• refer the valuation supplied by the applicant for a review.
In both cases, the applicant must agree that the valuation or review shall proceed. If so, the applicant must also pay a sum required by the Commissioner before the Commissioner will instruct the valuer to commence the valuation or review.
Subsection 359-40(4) of Schedule 1 to the Act states that the Commissioner may charge the applicant an amount in accordance with the regulations for the valuer making or reviewing the valuation.
Regulation 1 provides that these Regulations will be the Taxation Administration Amendment Regulations 2008 (No. 3).
Regulation 2 provides that these Regulations commence on the day after they are registered.
Regulation 3 provides that Schedule 1 of these Regulations amends the Taxation Administration Regulations 1976.
This Schedule inserts a new Part 7 into the Tax Administration Regulations 1976.
Regulations 60 to 63 describe the circumstances in which the Commissioner can charge for the making or reviewing of a valuation as part of a private ruling, and the procedures surrounding such a process.
These regulations will apply in relation to an application for a private ruling made on or after the day they commence.
If making a private ruling would require determining the value of any thing, the Commissioner can charge taxpayers for a valuation or a review of a valuation associated with a private ruling where the Commissioner:
• requests a valuer to make a valuation, or
• requests a valuer to review a valuation provided by the applicant.
A review of a valuation will examine, among other things, whether the methodology used and assumptions made, are appropriate in coming to the valuation provided. Where the review concludes that the valuation is defective in some way, for example, an inappropriate methodology has been used, the review will not provide an alternate valuation. In such a case, the taxpayer would have the option of obtaining a new valuation themselves and submitting it for review, or requesting that the Commissioner make a valuation for them.
The amount the Commissioner can charge must be equal to the amount the Commissioner is required to pay the valuer for making or reviewing the valuation.
The valuer would usually charge the Commissioner on a commercial basis that may include, among other things:
• an hourly labour rate for the valuer’s time;
• the valuer’s travel and accommodation costs; and
• the Goods and Services Tax (GST).
As part of a private ruling, John requires a valuation of his shares in a private company for tax purposes. The Commissioner provides an estimate to John based on advice from a valuer that the valuation will cost $500. John agrees for the valuation to proceed and pays the Commissioner $500. The valuation is undertaken and the Commissioner pays $500 to the valuer. A private ruling is provided to John on the basis of that valuation.
Example 1.2
Sandra applies for a private ruling asking “Will the Commissioner accept $500,000 as the value of my commercial property for depreciation purposes based on the attached valuation?” The Commissioner decides to refer Sandra’s valuation to a valuer for review. The valuer estimates it will cost $1,500 to review the valuation. The Commissioner advises Sandra of this estimate, which she pays. The Commissioner then instructs the valuer to conduct the review. The review indicates that Sandra’s valuation is not acceptable because an inappropriate valuation methodology has been used. The Commissioner provides Sandra with a ruling stating this. With this ruling, Sandra has the usual objection rights that apply to any private ruling.
Subsection 359-40(1) of Schedule 1 to the Act only permits the Commissioner to refer a matter to a valuer for a valuation or review of a valuation, if the valuation is required as part of the private ruling.
Example 1.3
Adrian requests a private ruling concerning the capital gain on a sale of an asset. However, the request does not seek to determine the amount of the gain. The Commissioner could not refer Adrian’s asset to a valuer in these circumstances. For the Commissioner to be able to refer Adrian’s asset to a valuer, his private ruling request must have a valuation element to it and Adrian must agree to pay for the valuation.
As already mentioned, the outcome of the valuation review process will be either acceptance or non-acceptance of the valuation submitted for review. It does not provide an alternative valuation as the process of review differs from the actual valuation process.
There could be instances where a government authority may perform the valuation for the Commissioner (for example, the Australian Valuation Office). Such a body may not charge the Commissioner GST for its services. However, the provision of a valuation service by the Tax Office to the applicant is a taxable supply, and subject to GST. Where the Commissioner receives an estimate for the cost of a valuation which does not include GST, the appropriate amount of GST will be added to the estimate and charged to the applicant.
Example 1.4
Fred applies for a private ruling requiring the Commissioner to determine the value of his printing press for tax purposes. The Commissioner requests a valuer to make a valuation. The Commissioner is charged $300 for the making of the valuation (not including GST). The amount the Commissioner will charge Fred for the making of the valuation is $300, plus $30 for the GST liability associated with the valuation, making a total of $330.
Paragraph 25-5(1)(a) of the Income Tax Assessment Act 1997 allows a taxpayer to deduct expenditure incurred to the extent that it is for managing their tax affairs. Under this paragraph, non-capital costs incurred by the taxpayer for the making or reviewing of a valuation as part of an application for a private ruling required for managing their tax affairs may be deductible for income tax purposes.
The Commissioner will generally refer a private ruling matter requiring the determination or review of the value of any thing to a valuer. However, if the Commissioner decides that the value of any thing can be determined without referring the valuation or review to a valuer, the Commissioner has the discretion not to refer the valuation to the valuer, and consequently there would be no charge. It is expected that this would only happen in rare circumstances.
Example 1.5
A husband and wife own equal shares in a property. They approach the Tax Office at the same time, each seeking a private ruling on the value of the property for tax purposes. All relevant facts are identical.
The law requires the Commissioner to issue a private ruling to each person. Given the identical circumstances, he would only have to refer the valuation to a valuer once. The Commissioner would charge only one applicant for the valuation.
Where an application for a private ruling causes the Commissioner to refer valuation work to a valuer, the Commissioner must obtain an estimate of how much it will cost to make or review the valuation, and inform the applicant of the estimated cost.
Once the Commissioner obtains this estimate, the Commissioner must provide the applicant with a notice that includes:
• an explanation that the cost to the applicant for making or reviewing the valuation is the amount that the Commissioner is required to pay the valuer for making or reviewing the valuation;
• the estimated amount of the charge, and either
– a statement advising that the estimated amount of the charge must be paid before the valuation will be conducted by the valuer; or
– a statement advising that the estimated amount of the charge can be paid in instalments (see below), identifying the amount of the first instalment, and advising the applicant that each instalment must be paid before the part or stage of the valuation or review to which the instalment relates is conducted.
Once the applicant has been informed of the estimated cost of the valuation work, they are under no obligation to proceed with the valuation or review. The applicant will be required to indicate their agreement to proceed with the valuation work by paying the estimated charge before the valuer will begin the valuation work.
A valuation or review may need to be completed in parts or stages (for example, if it is complex). Where the valuer determines that payment by instalments is appropriate, they will advise the Commissioner. The Commissioner will then inform the applicant that they can pay in instalments. However, the Commissioner is not required to determine that the charge may be paid in instalments for any particular valuation or review.
Example 1.6
As part of an application for a private ruling, a large mining company requires the valuation of a gold mine for tax purposes. The Commissioner provides the applicant with a notice advising that the valuation will be conducted in four stages due to the size of the task. The notice advises the applicant of the estimated total cost of the valuation, and the amount of the first instalment.
The applicant indicates their agreement to proceed with the valuation by paying the first instalment.
Following stages of the valuation will commence once the relevant instalments are paid.
Paragraph 359-35(2)(a) of Schedule 1 to the Act allows the Commissioner to decline to make a ruling if the Commissioner considers that making the ruling would prejudice or unduly restrict the administration of a taxation law. The explanatory memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No 2) 2005 makes it clear, at paragraphs 3.81 and 3.90, that the Commissioner can use this provision to refuse to rule if the applicant does not agree to pay for the valuation or the review of the valuation. Therefore, where the applicant does not indicate their agreement to proceed by paying the estimated amount of the charge (or the applicable instalment) within a reasonable time, it would be open to the Commissioner to conclude that the applicant does not wish to proceed with their application and decline to rule.
The Commissioner must provide the applicant with written reasons for declining to make the private ruling.
Example 1.7
Luke applies for a private ruling that requires the valuation of his investment property for tax purposes. The Commissioner provides Luke with a notice estimating the amount of the charge required to conduct the valuation. Luke does not indicate his agreement to proceed by paying the amount of the estimated charge for the valuation.
The Commissioner declines to make the private ruling and provides Luke with a written explanation of the reasons for declining to rule.
The final charge for the cost of a valuation or a review of a valuation can be less than or greater than the estimate provided by the Commissioner. An estimate is not a guarantee of the final cost of a valuation. If the cost of the valuation is greater than the estimate, the Commissioner is permitted to recover the outstanding amount from the applicant. In these circumstances, the Commissioner will arrange for a final invoice to be sent to the applicant to collect the difference. The outstanding amount becomes a debt due to the Commonwealth (that is not recoverable as a tax-related liability under Part 4-15 of Schedule 1 to the Act).
Where the amount of the charge payable to the Commissioner is less than the estimate provided by the Commissioner and paid by the applicant, the Commissioner must refund to the applicant an amount equal to the difference as soon as practicable.
The charge is for making or reviewing the valuation and not for making the ruling. If a taxpayer applies for a private ruling that requires a valuation or review, and then subsequently withdraws the application part-way through the valuation process, the taxpayer is still liable for the amount the Commissioner is required to pay the valuer for the valuer’s work up to that point.
Example 1.8
Sarah applies for a private ruling requiring a valuation of an item of property for tax purposes. The Commissioner provides Sarah with a notice estimating the amount of the charge of the valuation at $1,000, which Sarah pays. The valuer completes the valuation but only charges the Commissioner $800.
The Commissioner provides Sarah with a refund of $200 as soon as practicable.
Example 1.9
Daniel applies for a private ruling requiring the valuation of a plantation for tax purposes. The Commissioner provides Daniel with a notice estimating the cost of the valuation at $2,000, which Daniel pays.
Daniel withdraws his application part-way through the valuation process. As a result, the Commissioner instructs the valuer to stop work and the valuer charges the Commissioner $1,400 for the work already completed.
The Commissioner must provide Daniel with a refund of $600 as soon as practicable.
Section 359-50 of Schedule 1 to the Act provides that if the Commissioner has not issued a private ruling or declined to make a private ruling within 60 days of the application for the ruling being lodged, the applicant may give the Commissioner a notice requiring the Commissioner to make the ruling. The 60 days may be extended by a ‘stop the clock’ period starting on the day the Commissioner tells the applicant about the referral of the valuation aspect to a valuer, and ending on the day on which the Commissioner tells the applicant that the valuer has completed their work in relation to the valuation.
Example 1.10
Angela applies for a private ruling requiring the valuation of an item of property for tax purposes.
The Commissioner issues a notice advising Angela that he has asked a valuer to provide an estimate of the cost to undertake the valuation. This notice begins the ‘stop the clock’ period.
The Commissioner receives the estimate from the valuer and issues a notice to Angela showing the estimated amount of the charge. Angela pays the amount.
The valuer completes the valuation and charges the Commissioner the estimated amount of the charge. The Commissioner informs Angela that the valuation has been completed.
This concludes the ‘stop the clock’ period. The 60 day period mentioned above is extended by the number of days in the period starting on the day the initial notice was sent to Angela (advising her that the valuation has been referred to a valuer) and ending on the day that she was informed that the valuation has been completed by the valuer.
The Commissioner will not issue the ruling to which the valuation relates until the amount of any outstanding debt is paid. If the debt is not paid within a reasonable time, the Commissioner will decline to make the ruling in accordance with paragraph 359-35(2)(a) of Schedule 1 to the Act.