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Inland Revenue

Tax Policy

Chapter 6 - Other Matters

Ability to rule when the matter is subject to a case before the courts

6.1 Under section 91E(3)(b), the Commissioner “may decline to make a private ruling if the matter on which the ruling is sought is subject to an objection, challenge or appeal, whether in relation to the applicant or to any other person”.

6.2 The 1994 discussion document explained the policy rationale for the discretion in the following terms:

In the Government’s view, a discretion not to rule for questions before the courts should be available in New Zealand. The purpose of a binding rulings system is to provide a timely decision as to how the Commissioner will interpret the legislation, but in cases where a court decision on a question of law is pending it would be inappropriate for the Commissioner to provide a ruling on the issue. Inland Revenue will notify the applicant that the issue is before the court and what Inland Revenue’s position is.[13]

The problem

6.3 The purpose of the discretion to decline to rule was not outlined in detail at the time of introduction but application of the discretion would seem to have these advantages:

  • It helps ensure that the application of the law by the Commissioner is consistent across taxpayers in similar circumstances.
  • It ensures that taxpayers cannot take undue advantage of a lack of clarity in the law that is in the process of being addressed by the courts.
  • It reduces administrative and compliance costs.

6.4 Section 91E(3)(b) is expressed in general terms and the scope of the provision, particularly the term “matter” is unclear. The provision does not allow for an unduly narrow interpretation such as requiring an identical transaction and the same or associated taxpayer. At the other extreme, it would be inappropriate to apply it to all instances where an issue arises that is commonly determined in a transaction – for example, the application of section BG 1 – as that would allow the Commissioner to turn down any ruling application on that issue. (We noted earlier that it was clearly intended that the Commissioner be able to rule on section BG 1.)

6.5 Such broad discretions do not fit well in a tax system based on self-assessment as taxpayers may be uncertain about how the Commissioner will exercise the discretion and may feel unable to confidently enter into legitimate business arrangements.

6.6 Even though section 91E(3)(b) is expressed in discretionary terms, we consider that greater clarity needs to be provided to guide taxpayers on when the discretion might be exercised. Otherwise, a taxpayer could apply for a binding ruling on an issue, unaware that the same “matter” is being considered by the courts, and Inland Revenue could decline to rule. This could result in significant costs to the taxpayer in not obtaining the certainty needed and in making the unsuccessful ruling application. In cases when the decision to decline to rule is made part-way through the rulings process – for example, because a new matter is before the courts – similar costs could arise.

Possible solution

6.7 Officials suggest that the ambit of section 91E(3)(b) be clarified by having regard to more explicit factors that would narrow the application of the discretion. These factors would be based on the need for consistency in relation to specific common issues, integrity of the tax system and reduced compliance and administrative costs. Our suggestion is to refer to:

  • an identical or substantially similar arrangement; and/or
  • an arrangement that concerns the same, or substantially similar, facts and issues.

6.8 This approach to the application of the discretion could preclude rulings being given for taxpayers involved in the same arrangement as that being considered by the courts (for example, as parties to a mass-marketed scheme) and taxpayers involved in a different arrangement with substantially similar characteristics to that being considered by the courts.

6.9 A key advantage of this approach is that it would remove any suggestion that the discretion can be applied when the similarity arises purely from a commonly considered tax issue such as the application of section BG 1.

6.10 An alternative option would be to base the exercise of the discretion on the objectives we have outlined – the need for consistency in relation to specific common issues, integrity of the tax system and compliance and administrative cost reduction.

6.11 Both of these options will raise issues of interpretation and we seek comments on this concern.

Declining to rule when the arrangement is the subject of a dispute

6.12 Under section 91E(4)(ga), the Commissioner may not make a private ruling if the application relates to an arrangement that is the subject of a notice of proposed adjustment (NOPA). This criterion was added in 1999 to clarify the policy intent that there should be no overlap between the existing disputes resolution process and the binding rulings regime. This is necessary to ensure that certainty for the taxpayer about the Commissioner’s position is maintained.

6.13 If a NOPA relates to only one aspect of the arrangement, the Commissioner cannot rule on other aspects which may not be related to the issue being disputed. For example, consider an arrangement which has both income tax consequences and GST consequences. Even if the NOPA relates only to the GST aspects of the ruling, a taxpayer cannot obtain a ruling in relation to the income tax aspects of the arrangement.

Possible solution

6.14 Officials suggest that the section be amended to allow the Commissioner to make a binding ruling if the arrangement is the subject of a NOPA but the application for the ruling relates to a different tax type from that in the NOPA.

6.15 For example, if the NOPA relates to GST aspects of the arrangement only, the Commissioner would be able to make a binding ruling in relation to the income tax consequences of the arrangement. However, if the NOPA relates to the tax treatment of an income stream under the arrangement, a binding ruling would not be able to be made if the ruling application concerns an expenditure stream under the arrangement as in this case the issues may overlap.

6.16 While we suggest that rulings should be able to be made if the matter involves a different tax type to that in the NOPA, there may be circumstances in which an issue concerning GST affects an income tax issue – for example, an issue involving a common definition such as that for a group of companies. A further qualification on the ability to rule would therefore be necessary to ensure that the matter in dispute, and that for which the ruling was sought, were sufficiently separate.

A ruling which fails in part

6.17 A similar question arises over whether a binding ruling application that fails in part should continue to apply in relation to the other part. For example, if a ruling relates to both GST and income tax and the GST part is taxpayer-negative should the income tax aspects of the binding ruling continue to apply?

Possible solution

6.18 Consistent with the previous issue, if the binding ruling is made for two or more tax types, the part or parts of the ruling which do not fail, and that concern separate tax types, should be treated as binding on the Commissioner. This would again be subject to the qualification of the different parts of the ruling being sufficiently separate.

Publication of notification of binding rulings in the Gazette

6.19 The binding rulings legislation requires Inland Revenue to notify the making and withdrawal of public and product rulings in the Gazette. Public and product binding rulings are also published in full in Inland Revenue’s Tax Information Bulletin (TIB). The TIB is available on Inland Revenue’s website and a paper copy can be requested. The question is whether Inland Revenue should continue to be required to notify taxpayers in the Gazette.

Possible solution

6.20 Given that these types of rulings are publicly available, and the only information published in the Gazette is notification that the ruling is being made or withdrawn, we consider that the requirement to publish in the Gazette should be removed.

6.21 However, to ensure that information on public and private rulings remains publicly available, we suggest the legislation be amended to require Inland Revenue to notify the making or withdrawal of such rulings in a suitable format.


6.22 Under section 91E(4)(f), the Commissioner may not make a private ruling if an assessment has been made relating to the person, the arrangement, and a period or a tax year to which the proposed ruling would apply, unless the application is received by the Commissioner before the date an assessment is made.

6.23 As noted earlier, taxpayers are required to self-assess their tax liability. A recent “Question we have been asked” (QWBA) raised the issue of whether section 91E(4)(f) applies in cases when the taxpayer self-assesses before a private ruling application has been received by Inland Revenue. [14] It concluded that the section does apply and a binding ruling may not be made.

6.24 The QWBA notes that:

2. The rationale behind section 91E(4)(f) is that if a transaction has been the subject of an assessment, then any dispute over the correct tax treatment of that transaction should be resolved under the tax disputes resolution procedures (Inland Revenue Department, Binding Rulings on Taxation: A Discussion Document on the Proposed Regime, June 1994).

6.25 As the rulings regime was introduced before self-assessment was legislated, the question has been raised whether the rulings regime ought to apply to allow the Commissioner to rule when the taxpayer had self-assessed.

6.26 The QWBA also notes that:

21. The rulings regime exists primarily for prospective transactions to enable taxpayers to obtain certainty, and thus comply with their tax obligations. When a taxpayer has already filed their return and made an assessment, the disputes resolution process is available to the taxpayer, should the Service Delivery Group disagree with the assessment. There was a clear legislative policy that the disputes resolution process would be available to ensure that disputes were resolved in these situations, and that the rulings regime would generally be available for situations that were contemplated or occurred before assessment.

6.27 Taxpayers who self-assess their tax liabilities have an obligation to determine the correct tax position in relation to an arrangement before taking it and, as the QWBA notes, the disputes process is available to the taxpayer should the taxpayer or the Commissioner seek to change that position. The conclusion reached in the QWBA is consistent with self-assessment and the clear separation between the disputes resolution process and the binding rulings regime. We consider that the policy in these areas remains sound and that no change to the legislation is warranted.

Summary of suggested options

Clarify the Commissioner’s discretion not to rule on matters before the courts by:

  • limiting its application to cases involving identical or substantially similar arrangements, facts or issues; or
  • basing the exercise of the discretion on factors such as the need for consistency in relation to specific common issues, integrity of the tax system and compliance and administrative cost reduction.

Provide an exception to the prohibition on ruling when the arrangement involves two or more tax types and is the subject of a notice of proposed adjustment.

Clarify that if a ruling is made on two or more tax types, and the ruling fails for one tax type, it will still be binding on the Commissioner for the other type or types.

Remove the requirement to notify the making and withdrawal of public and product rulings in the Gazette and require that Inland Revenue publish notification in a suitable format.


13 Paragraph 6.15.

14 QB 08/01 Tax Information Bulletin Volume 20, No. 5, June 2008.