ATO ID 2010/226: Amendment of assessments: time limits for amending assessments where Regulation 20 of the Income Tax Regulations 1936 applies and the matters for which assessments may be amended
Date of decision: 6 December 2010
Year of income: Year ended 30 June 2006
Business line: Administration, Business and Personal Taxes Centre of Expertise

Issue
Where the Commissioner determines that section 45B of the Income Tax Assessment Act 1936 (ITAA 1936) applies to a taxpayer and therefore, the taxpayer is subject to the four year amendment period as prescribed by Regulation 20 of the Income Tax Regulations 1936 (Regulation 20), is the Commissioner limited in his amendment to only matters concerning the application of section 45B of the ITAA 1936?

Decision
No. Once the Commissioner determines that Regulation 20 applies to the taxpayer, the Commissioner is not limited to amending the taxpayer's assessment only in relation to section 45B of the ITAA 1936. The Commissioner may amend the taxpayer's assessment concerning any matter within the prescribed amendment period, being four years after the notice of assessment is given to the taxpayer.

Facts
As a result of a corporate restructure, shares were transferred to an individual taxpayer who was a shareholder of the corporate group in the 2005-06 income year. On the same day the taxpayer acquired their shares, they disposed of them. The taxpayer lodged their tax return for the 2005-06 income year in 2006 and was given a notice of assessment later that year. The Commissioner subsequently commenced an audit into the restructure of the corporate group. As a result of the audit, the Commissioner made a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applied to part of the capital benefit provided under the scheme. More than two years, but less than four years, after the notice of assessment was given to the taxpayer, the Commissioner issued the taxpayer an amended assessment. The amendment was not made in relation to section 45B of the ITAA 1936 but on the basis that the taxpayer had not declared the correct net capital gain in their assessable income from the disposal of those shares in accordance with section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997). The Commissioner considered that the restructure did not satisfy the conditions for roll-over relief in Division 125 of the ITAA 1997. The taxpayer took the view that the Commissioner could not amend their assessment as the amendment was not made in relation to section 45B of the ITAA 1936. Therefore, the two year amendment period set out in item 1 in the table in subsection 170(1) of the ITAA 1936 (item 1) had expired.

Reasons for decision
Summary: The two year amendment period in item 1 in the table in subsection 170(1) of the ITAA 1936 is subject to the exceptions or 'qualifications' in that item. One such qualification is paragraph (f) which provides that the two year amendment period does not apply 'in any other circumstances prescribed by the regulations'. Regulation 20 of the Income Tax Regulations 1936 (Regulation 20) states: Amendment of assessments for an income year For a provision of subsection 170(1) of the Act mentioned in an item of the table, the circumstances set out in the item are prescribed. Note If a circumstance in an item of the table exists, the Commissioner of Taxation may amend an assessment of the taxpayer within 4 years after the day on which the Commissioner gives notice of the assessment to the taxpayer, unless a longer amendment period applies to the taxpayer. The relevant 'item' in these circumstances is item 8 of the table in Regulation 20. Specifically paragraph 8(b) of Regulation 20 provides that a four year amendment period applies where: 8. Any of the following provisions applies in relation to the taxpayer in the year of income mentioned in the item: ...(b) section 45B of the Act (schemes to provide certain benefits); Paragraph 8(b) of Regulation 20 only requires that section 45B of the ITAA 1936 apply to the taxpayer in the relevant year of income. It does not impose a further requirement that the amendment of the assessment only be limited to matters relating to section 45B of the ITAA 1936. There is nothing in the Explanatory Statement to the Income Tax Regulations 1936 indicating that the ability to amend is intended to apply narrowly. It provides that 'excluded taxpayers' will have a four year amendment period and furthermore that 'Item 8 ...excludes from the two year period of review individuals ...whose tax affairs fall for consideration under the following specific anti-avoidance provisions...'. Therefore, once the Commissioner determines that paragraph 8(b) of Regulation 20 applies to a taxpayer, he is not limited to amending a taxpayer's assessment only in relation to section 45B of the ITAA 1936. The Commissioner may amend the assessment at any time within the four year period in order to arrive at the taxpayer's correct tax position for a given year. The Commissioner is entitled to make such alterations in, or additions to, the relevant assessment as he thinks necessary to correct the assessment. This includes, for example, amending the assessment on the basis that the correct net capital gain is not declared in the taxpayer's assessable income in accordance with section 102-5 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 section 45B paragraph 45B(3)(b) section 45C subsection 170(1)
Subject references: Amendment of assessments Assessment period