Background

A significant element of the Australian Taxation Office's (ATO's) administration of the taxation law is the provision of interpretative advice to taxpayers on taxation issues. The provision of taxation advice is particularly important because of Australia's self assessment taxation system. The system relies heavily upon taxpayers having a good understanding of taxation law in order to fulfil their taxation obligations.

A key mechanism used by the ATO to disseminate the Commissioner of Taxation's (the Commissioner's) interpretative advice on taxation law is taxation rulings. Broadly, a taxation ruling is the Commissioner's interpretation of how the taxation law is applied to a taxpayer or group of taxpayers' circumstances. In general, the advice addresses the extent of the taxpayer's liability.

Taxation rulings can be grouped into four broad categories: public rulings, private rulings, oral rulings and taxation rulings. The latter refers to rulings published before 1 July 1992. Depending upon the nature of the ruling and when the ruling was issued, these may be either legally and/or administratively binding on the Commissioner.

Previous audit

The Australian National Audit Office (ANAO) completed a performance audit of the ATO's administration of taxation rulings in July 2001, titled The Australian Taxation Office's Administration of Taxation Rulings (later referred to as Report No. 3 of 2001–2002).

In summary, we concluded that the processes for the production of public rulings of high technical quality operated effectively overall; but the collection, analysis and use of performance information could have been enhanced in some areas. We also considered that the mechanisms in place for public rulings substantially provided for consistent and fair treatment for taxpayers. This positive assessment for public rulings contrasted with the situation for private rulings.

With regard to private rulings we found that the administrative processes had operated poorly in many respects. We also found that the lack of integration of systems and inadequate systems controls undermined certainty, fairness and consistency of treatment for taxpayers. Although the ATO was taking steps to address these deficiencies as part of the Provision of Advice Project, we considered that the ultimate test would be in the results achieved. The ANAO made 12 recommendations aimed at improving the ATO's administration of taxations rulings. The ATO agreed to all of the recommendations.

Joint Committee of Public Accounts and Audit review

The Joint Committee of Public Accounts and Audit (JCPAA) reviewed Report No. 3 of 2001–2002 and published its findings in Report No. 390, Review of Auditor-General's Reports 2001–2002: First, Second and Third Quarters. The JCPAA did not make any recommendations, but suggested that the ATO improve its processes to enhance the clarity and content of public rulings. The JCPAA also noted the ANAO's comments about the need to articulate the ATO's approach to prioritising public rulings and recommendations aimed at improving the management of the private rulings system.

Audit objective

The objective of the follow-up audit was to assess how well the ATO has implemented the recommendations of Audit Report No. 3 of 2001–2002, The Australian Taxation Office's Administration of Taxation Rulings.

As part of the audit, we also considered the ATO's progress in addressing the JCPAA's suggestions resulting from its review of Report No. 3 of 2001–2002.

Audit conclusion

The ANAO concluded that the ATO has fully implemented the 12 recommendations of Report No. 3 of 2001–2002. We noted that, since the previous audit, the ATO has also undertaken a number of initiatives to improve its rulings systems. The main initiatives have included the following:

• improving the integrity and transparency of the processes surrounding the provision of written binding advice;
• redeveloping information technology systems supporting the issuing of private binding rulings;
• enhancing monitoring and reporting of performance;
• consolidating procedural guidance to staff through the implementation of an on-line resource manual;
• developing a comprehensive approach to setting internal taxation law precedent; and
• introducing a Priority Technical Issues process, to support the management of strategic risks.

Agency's response

We welcome the ANAO findings that all 12 recommendations have been fully implemented. This reflects well on our efforts to improve our ability to administer the taxation rulings system for the benefit of the community.

The gains made as a result of the recommendations have enhanced Australia's public and binding and reviewable private ruling systems, which are world's best in design and application. The gains have also provided a sound basis for the initiatives