Ian James Gray and Susan Patricia Johnson and Commissioner of Taxation
[2012] AATA 381
•26 June 2012
[2012] AATA 381
Division Taxation Appeals Division File Number(s)
2011/4998
Re
Ian James Gray and Susan Patricia Johnson
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member Bernard J McCabe
Date 26 June 2012
Place Brisbane The Tribunal does not have jurisdiction to review the description of the Scheme.
.............................[Sgd].............................
Senior Member Bernard J McCabe
CATCHWORDS
PRIVATE RULINGS – mis-description of Scheme in ruling – mis-description of Scheme – jurisdiction to reconsider the definition of Scheme on review – no jurisdiction to review the description of the Scheme
REASONS FOR DECISION
Senior Member Bernard J McCabe
26 June 2012
The taxpayer sought a private ruling but he did not like the outcome. He says the Commissioner proceeded on a misunderstanding of the Scheme the taxpayer was proposing. The taxpayer now wants to challenge the objection decision on the ruling but the Commissioner says the Tribunal does not have jurisdiction to entertain the application. The Commissioner does not deny there was a misunderstanding but says the ruling has been issued on the basis that the Scheme would proceed in a particular way and it is not open to the Tribunal to revisit the description of the Scheme. The Commissioner says the taxpayer must start the ruling process again, although he has helpfully conceded it may be possible to expedite that process in light of the problems.
I do not think the Tribunal has jurisdiction to deal with the matter. I explain my reasons below.
BACKGROUND TO THE OBJECTION DECISION
The taxpayer is a professional person who advises individuals on their business and tax affairs. He said he is often called upon to advise clients about insurance and financial planning needs and how they might be managed without adverse taxation consequences. In particular, he has been advising clients who take out an insurance policy how he or she might effect a transfer of the beneficial interest in that asset so it becomes “co-owned” by the person who took out the policy and another person (typically a partner or spouse) as tenants-in-common.
I was told there are at least two ways in which one might transfer an interest in an existing insurance policy like the ones in question here. The most obvious way is to execute a memorandum of transfer, which is a standard conveyancing document. But there is a problem: the taxpayer says a transfer using this method might affect the taxpayers’ liability to pay capital gains tax when the policy is paid out. He says the preferred option is to write to the insurance company and request that the existing policy be cancelled and re-issued in the names of the new co-owners as tenants-in-common.
The taxpayer and his wife used their own insurance arrangements as the basis for their private ruling. Each of them had an existing insurance policy in their own names. They were not seeking to make any substantive changes to the terms of the policy; they merely wanted to add each other as co-owners of the beneficial interest in each policy. To that end, they entered into an agreement, known as the insurance partnership agreement. They approached the Commissioner for a private ruling on what they proposed. He was provided with copies of the partnership agreement and the insurance policies. I understand it was the taxpayer’s intention to use the private ruling as the basis for providing advice to his clients who might effect similar arrangements.
The private ruling says the Scheme in question was described in the partnership agreement and the policies and the supporting documentation. The ruling went on to summarise the Scheme in language that was drafted (or at least agreed) by the taxpayer. At sub-paragraph (f), the ruling noted the taxpayer and his wife would enter into the insurance partnership agreement. At sub-paragraph (g), the ruling acknowledged the recitals to the partnership agreement contemplated:
·The policy owners (the taxpayer and his wife, in this case) own or will own each of the benefits payable under each policy in their joint names as tenants-in-common;
·The taxpayer and his wife wish to legally and beneficially hold the benefits payable under the policies in the proportions set out in the partnership agreement; and
·The taxpayer and his wife wished to receive the insurance proceeds jointly from the insurers.
The Commissioner’s ruling did not address the question of the taxation consequences of the parties giving effect to the terms of the partnership agreement – in particular, it did not address the consequences of the parties actually transferring the beneficial interests in the policies to each other. The taxpayer says that was rather the point of the whole exercise: he wanted to know the Commissioner’s attitude in the event of co-ownership, whereas the ruling stops short and deals with the Scheme on the basis that the policies continue to be owned by one person.
The taxpayer says the Tribunal can remedy this defect on review because the description of the Scheme in the ruling clearly contemplates a process that ends with co-ownership pursuant to the terms of the partnership agreement.
I was not provided with a copy of the partnership agreement in this case so I do not know what it says about the way the beneficial interest was to be transferred – recalling that the taxpayer explained there are at least two ways in which that might be done, and one way might have different (and more favourable) tax consequences than the other. Mr Reeves, for the Commissioner, pointed out the description of the Scheme in the ruling does not include that sort of detail either. That is a problem: Mr Reeves says the Commissioner cannot be expected to bind himself to deal with the taxpayer in a particular way when an important detail of that arrangement remains unarticulated in the ruling.
The Commissioner is right. The rulings system is designed to give certainty to taxpayers but it assumes a level of certainty in the description of the arrangement or scheme under consideration. In this case, the requisite degree of certainty could have been reached following a more searching discussion between the taxpayer and the Commissioner’s officers. Mr Reeves conceded the Commissioner should have declined to issue the ruling until the additional detail was obtained – and it was readily available, so that would not have been a problem. But having issued the ruling on a particular identified basis, the Commissioner says it is not open to the Tribunal to second-guess the factual basis of the Scheme. He says that is what would be required in order to make the ruling the applicant seeks. I agree.
I understand the Commissioner has already prepared a draft ruling which addresses the questions the taxpayer wants answered. It seems that is where the taxpayer must now concentrate his efforts.
CONCLUSION
The Tribunal does not have jurisdiction to review the description of the Scheme.
I certify that the preceding 12 (twelve) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.
............................[Sgd]..............................
Associate
Dated 26 June 2012
Date(s) of hearing 26 April 2012 Applicant Self-represented Solicitors for the Respondent Mr Reeve
0
0
0