Binding Ruling

“The Wikipedia of Law”

Binding Ruling


A binding ruling is New Zealand Tax Authority’s interpretation of how a tax law applies to a particular arrangement. An arrangement (called “Schema” in Australia) is any agreement, contract, proposal, action, plan, course of action or course of conduct, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings. In most countries, the term is “tax ruling”. See Tax Rulings in the World for a complete review of this tool in several countries. The term “binding ruling” is used in a number of countries, like Lithuania.

In New Zealand, the actual binding ruling is always only issued once the fee has been paid.

Charges for the provision of Binding Rulings

New Zealand´s Inland Revenue charges for the provision of binding rulings at an hourly rate of $137.78 plus GST. Inland Revenue’s charges on a ruling application of medium complexity would typically be around $20,000 plus GST. And because the legal principles surrounding the GAAR are especially difficult and uncertain, taxpayers also have the cost of representation by a lawyer or tax accountant in connection with the application. That cost will typically exceed the fees payable to Inland Revenue. In total, the cost of obtaining a ruling on the application of the GAAR can easily exceed $50,000.


The time taken for New Zealand´s Inland Revenue to consider a ruling application and provide its response is (currently) around three to five months. This is a considerable improvement on earlier experience; previously, it was not uncommon for the process to take a year or longer. Nonetheless, current timeframes of three to five months remain too long for a binding ruling to be secured in advance of certain time-sensitive transactions being entered into.


Even where the cost and timeframes do not preclude taxpayers from seeking a ruling, the process itself involves limitations. These include:
(a) The fact that a favourable ruling is typically subject to assumptions and conditions, which Inland Revenue may audit at a later stage. Therefore, while a binding ruling limits the scope of future disagreement with Inland Revenue, it does not eliminate that risk.
(b) The fact that, in recent years, there have been instances of different divisions of Inland Revenue taking different views concerning the application of the taxes, with the consequence that a taxpayer who has received a favourable ruling from Inland Revenue’s rulings unit may face attempts from a different division of Inland Revenue to overturn that ruling or to act inconsistently with it. A documented example of this phenomenon can be found in the New Zealand´s case Westpac Banking Corporation v CIR in which the Court of Appeal declined to hold that amended assessments issued on a basis that was arguably inconsistent with the basis on which a binding ruling had been given, were unlawful. The Court summarised the position as follows:30
“All in all, attempts to identify discrete legal issues on which Corporates and Rulings held diametrically opposing views were unsuccessful. This is a function of the open-textured, evaluative and fact specific exercise required by s BG 1. On the other hand, there plainly was a difference in approach between the two business units [within Inland Revenue]. At a broad level, Corporates staff were generally far more sceptical of the repo deals than Rulings had been in relation to the First Data transaction. As well, Corporates took a more bullish (or perhaps aggressive) approach to the application (and scope) of s BG 1.”

Binding Ruling in New Zealand

The New Zealand´s Supreme Court’s advice that taxpayers contemplating transactions with high value tax consequences can seek an advance ruling unfortunately represents an overly simplistic view. For one thing, the cost and timeframe involved in seeking an advance ruling are such that an advance ruling is not an option for most taxpayers.

Advance Tax Rulings (ATR) in South Africa

The Advance Tax Ruling (ATR) system is intended to promote clarity, consistency and certainty in respect of the interpretation and application of the tax laws to which it applies.

Private Ruling (Scheme) in Australia

A private ruling is a written expression of opinion by the Commissioner of Taxation (sets out the Commissioner of Taxation’s opinion) about the way a tax law applies, or would apply, to the taxpayer in relation to a specified scheme or circumstance.

If the taxpayer relies on a private ruling you have received (that is, the taxpayer applies the ruling to his/her tax affairs), the Commissioner must administer the law in the way set out in the ruling, unless the ruling is found to be incorrect and applying the law correctly would lead to a better outcome for the taxpayer.

Some texts are extracted from “Improving the Operation of New Zealand´s Tax Avoidance Laws”

See Also

General Anti Avoidance Rule
Penny and Hooper case
Tax Avoidance
Trust Taxation
Rule of Law
General Agreement on Tariffs and Trade
What is a Section 645 election?
Charity Trusts
Mandatory or Binding vs. Persuasive Authority
Law binding
List of Tax Acronyms and Abbreviations
Trust Registration

Further Reading

13 Harry Ebersohn “Tax Avoidance and the Rule of Law” (paper presented to Legal Research Foundation Tax Avoidance Symposium, Auckland, April 2011).

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