Mount Pritchard & District Community Club Limited v COT – a “material change” opens the door to the Commissioner

The decision two days ago of the Full Federal Court in Mount Pritchard & District Community Club Limited v Commissioner of Taxation [2011] FCAFC 129 confirms that the Commissioner can disregard a private ruling if there has been a “material change” to the arrangement which was the subject of the ruling.  The decision shows the importance of getting the arrangement right initially and also the dangers to the client if circumstances change down the track.  While the decision related to the private ruling regime for income tax, the lessons are equally applicable to private rulings sought in respect of GST.

The decision has rather an unfortunate history, but the essential facts are that in February 2004 the taxpayer obtained a private ruling that it would be exempt from income tax for the 2003 to 2010 income years.  In 2007 the Commissioner contended that due to a material change in the arrangement (as a result of the amalgamation of the club with another), the Commissioner was not bound by the ruling and proceeded to issue income tax assessments for the 2006 income year.

The taxpayer objected to that assessment but issued these proceedings under s39B of the Judiciary Act seeking to effectively quash the assessments on the basis that the ruling regime placed a duty on the Commissioner not to raise assessments in a manner contrary to the ruling.  The Full Federal Court found that such a duty did not exist.  Further, due to the “material change” in the arrangement, the Commissioner was free to issue the assessments and the taxpayer had recourse to review of the assessment under Part IVC of the Taxation Administration Act.

The decision is yet another example of the difficulties involved in attacking assessments through means other than Part IVC.

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