ATO and administration
Practical compliance guideline
A practical compliance guideline is ATO guidance that explains how the ATO will allocate its compliance resources and, in some cases, sets out approaches it considers lower risk.
A practical compliance guideline, often shortened to PCG, is a type of ATO publication that explains how the ATO will approach compliance in a particular area. It is less about interpreting the law and more about the practical question of where the ATO will focus its attention. A guideline may describe risk zones, setting out arrangements that the ATO considers low risk and those more likely to attract review.
Guidelines are used where the law leaves room for judgment and where taxpayers want to know what approach is safe. For example, a guideline might describe a simplified way of treating a common situation so that a taxpayer who follows it can expect less scrutiny, or it might describe features of an arrangement that raise concerns. The aim is to give clarity without needing every taxpayer to seek a private ruling.
It is important to understand what a guideline is not. It is not legislation, and it does not change the law. It does not bind the courts. What it does is show how the Commissioner will use compliance resources, and in many cases the guideline says that taxpayers who follow it will not be the subject of compliance action on that topic. That is a statement about ATO administrative practice rather than a change in your legal rights.
For small business owners, guidelines can arise in areas such as simplified methods for working out amounts, treatment of particular business arrangements, or the way the ATO views certain payments. When a guideline offers a simplified option, you can use it as a way to reduce record keeping and the risk of dispute, but only if your circumstances fit the conditions set out in it. If they do not, the simplified approach should not be used.
Guidelines can be updated, replaced or withdrawn, so check the version and the period it applies to. They also tend to be accompanied by examples that help illustrate the conditions. The ATO publishes them in its legal database alongside rulings and determinations, and they are often referenced in ATO web guidance. Reading the guidance page for your topic usually leads you to any relevant guideline.
A common misunderstanding is that following a guideline guarantees the ATO will never question the matter, or that ignoring one means you have done something wrong. Neither is necessarily true. A guideline is a risk framework, and your obligations still come from the law. If you are uncertain, getting advice or a private ruling gives firmer protection. This is general information only, so confirm how a guideline applies to you with the ATO or a registered tax professional.
Worked example
A small business owner uses a simplified approach set out in a practical compliance guideline for a type of expense. The guideline's conditions say that if she keeps a certain record, such as a documented method, the ATO considers her low risk. She keeps the record for her $1,100 GST-inclusive monthly costs and treats the $100 GST accordingly. If her facts had not fitted the guideline's conditions, she would not have been able to use the approach.
Practical tips
- Check that every condition in the guideline is met before using a simplified approach. Partial compliance does not qualify.
- Remember a guideline describes ATO compliance practice. It does not change the law.
- Keep the records the guideline asks for, since they are your evidence if the ATO asks questions.