Law Council president John North called for a clarification of the ATO’s intentions on the treatment of service trusts as outlined in its draft ruling on the issue and said examples given in the ruling were “extreme” and of “little practical guidance to the community”.

“For nearly 30 years this area of the law has seemed stable and settled. But now the ATO wants to change its approach to the way it will treat factual matters that it appears to have previously accepted,” North said in a statement released by the Law Council last week.

He said it appeared the ATO wanted to change its approach retrospectively, but anything other than a prospective change would be inappropriate.

Since the Phillips case decision in 1978, many businesses had used service entities to provide incidental business services and had set the fees consistently with those outlined in that case. Fees charged and levels of mark-up were all factual matters that impacted on the proper outcome under the law, North continued.

“The ATO obviously wants to give guidance to the business community through the case examples to which it refers,” he said. “But more balance and appropriate examples will better serve the interests of the ATO and taxpayers.”