Accounting

Should I seek a Private Binding Ruling to resolve a tax issue in my financial settlement?

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Should I seek a Private Binding Ruling to resolve a tax issue in my financial settlement?

A Private Binding Ruling from the Commissioner of Taxation is a method of resolving disputes as to whether future tax liabilities will arise from a financial settlement under the Family Law Act.

Introduction

The Family Court proceedings of Kerr & Christie (2021) FamCA 624 saw Ms Kerr apply for orders that Mr Christie obtain a Private Binding Ruling from the Commissioner of Taxation. The purpose of this application by Ms Kerr was to resolve a taxation dispute in her financial settlement with Mr Christie under s79 of the Family Law Act (1975) (Cth).

Read here our article on Kerr & Christie.

The questions that stem from the Kerr & Christie proceedings are what is a Private Binding Ruling, who can apply for a Private Binding Ruling and when should a Private Binding Ruling be sought to resolve a tax dispute that arises in the course of a financial settlement?

What is a Private Binding Ruling?

A Private Binding Ruling is a statement from the Commissioner, pursuant to s359 of the Taxation Administration Act (1953) (Cth), issued to the applicant taxpayer on how taxation applies to that taxpayer’s specific circumstances. A Private Binding Ruling is binding in the sense that the Commissioner is committed to assessing any taxation in respect of that taxpayer’s circumstances in the manner in which is outlined in the ruling.

A taxpayer may apply for a ruling in respect of existing circumstances, or better yet, in respect of prospective circumstances, such as a future transaction being contemplated. As was the case in Kerr & Christie, a taxpayer may also specifically seek the Commissioner’s confirmation on whether there is any future tax attached to assets that are subject to a financial separation under the Family Law Act.

What is a Private Binding Ruling?

Who can apply for a Private Binding Ruling

The Taxation Administration Act provides that you, your agent or your legal personal representative may apply for a Private Binding Ruling. Importantly, you cannot apply for a ruling in respect of another taxpayer’s affairs. Therefore, a spouse cannot apply for a ruling in respect of the other spouse, even if the tax outcome is pertinent to both spouses' financial settlement.

The Family Court addresses this issue in Kerr & Christie by ordering that, after four weeks following the date of the Conciliation Conference, and if agreement between Ms Kerr and Mr Christie is not reached, Mr Christie must apply to the Commissioner of Taxation for a Private Binding Ruling in order to resolve the tax contention held by Ms Kerr.

Who can apply for a Private Binding Ruling

When should a Private Binding Ruling be sought?

Applying for a Private Binding Ruling can be a particularly helpful approach when dealing with a significant transaction or contentious tax issue. Further, in a property settlement matter before the Family Court, a Private Binding Ruling can assist where appropriate evidence as to their tax affairs is not otherwise furnished by one spouse to the other.

Seeking a Private Binding Ruling is a form of risk management that removes the possible uncertainty of relying solely on the usual self-assessment method of the Australian taxation system. Under the self-assessment system, it is open to the Commissioner to apply penalties and interest charges should a taxpayer self-assess their tax position incorrectly. Further, if a taxpayer is dissatisfied with the outcome of a ruling application, an objection may be lodged against the Commissioner’s ruling in advance of proceeding with the transaction itself. Thus, a ruling provides further opportunity to resolve any issues before actually being liable for any taxation whilst also avoiding the occurrence of penalisation.

In the context of a financial settlement under the Family Law Act, a Private Binding Ruling can provide certainty as to the quantum of future tax liabilities that exist in a relationship’s asset pool, thereby assisting spouses in reaching agreement on financial settlement terms.

About the Author

Dean Crossingham

Dean is an Accountant and Tax Adviser who provides specialist tax services in relationship separation and divorce matters.

He provides expert guidance in navigating the tax consequences of a relationship breakdown. This includes expert tax advice on the division of relationship assets, property settlement tax structuring and negotiation support as well as ongoing accounting and tax services post property settlement.

Dean Crossingham