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Retrospectivity in Superannuation Ruling of concern to tax professionals

Publication date: 09 May 99 | Source: THE TAX INSTITUTE

After years of uncertainty, the Taxation Institute of Australia is pleased that at long last the Australian Taxation Office have delivered a policy statement in respect of employee benefit schemes, controlling interest arrangements, offshore and non-complying superannuation funds which effectively puts a stop to the very popular year-end tax strategies.

These are the very types of arrangements that the ATO's Strategic Information Network were meant to identify and if considered unacceptable take whatever steps were necessary to combat them.

"Although the Ruling has put to bed the speculation and doubts surrounding the legitimacy of a number of these arrangements, the Institute is concerned that the Tax Office has been far too slow in recognising and acting upon the tax aggressiveness of these arrangements," said the Taxation Institute's Tax Director Mr Michael Dirkis.

"In addition, the Institute is extremely concerned about the retrospective nature of the Ruling which applies to all transactions whenever entered into," he said.

"Many tax practitioners have relied on broad Tax Office advice issued as late as February 1999 and invested substantial client funds in these superannuation funds which, as of yesterday, have been outlawed by the Commissioner."

"The Institute has already received a stream of calls from members expressing their anger and confusion over the Commissioner's decision to apply this Ruling retrospectively, " Mr Dirkis said.

The Institute has identified numerous other examples of the Commissioner "re-neging" on his previous position. These incidences can be traced back to 1991 when the Commissioner reversed his practice in respect of Patcorp Investments Case, and even more recent decisions in Bellinz, and in Crommelin (where the Commissioner argued that the views expressed in Taxation Ruling IT 2551 were incorrect).

"Considering the enormous uncertainty about the future structure and operation of the Australian taxation system currently facing the Australian community, taxpayers and advisers should be able to rely on the Commissioner's stated views. The latest Ruling TR99/5, shows that this is not the case," said Mr Dirkis.

The Taxation Institute is also concerned about who will ultimately bear the cost of the Tax Office continually changing its mind on an issue and instituting retrospective Rulings.

"Who bears the cost of reversing these investment decisions: it will be the public, not the Tax Office. The community should not bear the cost of arrangements which, since 1991 have had the blessing of the Commissioner,but are now deemed to be invalid, " said Mr Dirkis.

"If the ATO changes its mind on an issue then they should have prospective, not retrospective effect."