ATO ID 2011/102: Amendment of income tax assessment outside limited amendment period on an application for amendment by the taxpayer
Date of decision: 1 December 2011
Year of income: Year ended 30 June 2012
Business line: Administration, Business and Personal Taxes Centre of Expertise

Issue
Does the Commissioner have the power to amend an income tax assessment for an income year under subsection 170(5) of the Income Tax Assessment Act 1936 (ITAA 1936) to include additional income where:

Decision
No. The Commissioner is outside the 2 year limited amendment period under subsection 170(1) of the ITAA 1936 and cannot amend the assessment under subsection 170(5) of the ITAA 1936 to include the additional income in the taxpayer's assessment. The Commissioner can only amend the assessment in relation to the additional deductions claimed by the taxpayer in the application for amendment.

Facts
A taxpayer (an individual) is a partner in a partnership. The partnership requested an amendment of the partnership income tax return for an income year (the relevant year) on the basis of a claim for additional partnership deductions. The taxpayer lodged an application for amendment of their income tax assessment for the relevant year to reflect their share of the additional deductions claimed by the partnership. In accordance with subsection 170(5) of the ITAA 1936 the application for amendment was made in the approved form before the end of the 2 year limited amendment period under item 1 of the table in subsection 170(1) of the ITAA 1936 (the limited amendment period). Before the end of the limited amendment period, the Commissioner discovered the partnership had omitted assessable income from its partnership income tax return for the relevant year. The Commissioner did not request the taxpayer to consent to extending the limited amendment period in accordance with subsection 170(7) of the ITAA 1936.

Reasons for decision
Summary: Under item 1 of the table in subsection 170(1) of the ITAA 1936, the Commissioner may amend the taxpayer's assessment within the limited amendment period to either increase or decrease the taxpayer's liability. Because of legislative amendments to section 170 of the ITAA 1936 enacted by Parliament in 2005, the period in which the Commissioner can amend an assessment for most individuals and very small business taxpayers was reduced to 2 years. The clear intent behind these amendments is to give certainty to taxpayers about whether they have correctly self-assessed their income tax liability. Relevantly, paragraph 2.14 of the Explanatory Memorandum to the Taw Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005, which introduced section 170 of the ITAA 1936 in its current form, states: The purpose of these amendments is to ensure that the time during which taxpayers experience uncertainty over whether they have correctly self assessed their income tax liability approaches the minimum required for the Australian Taxation Office (ATO) to identify the majority of incorrect assessments of that type and correct them. The limited amendment period specified in subsection 170(1) of the ITAA 1936 may be extended in several cases including where the taxpayer applies for an amendment in the approved form before the end of the limited amendment period under subsection 170(5) of the ITAA 1936. In such a case the Commissioner may amend the assessment after the end of the limited amendment period 'to give effect to the decision on the application'. The power to amend conferred by this subsection is limited to giving effect to a decision concerning a particular (or particulars) of the assessment in respect of which the taxpayer has applied for amendment and nothing more. It is contrary to the intent and effect of section 170 of the ITAA 1936 to adopt an interpretation of subsection 170(5) of the ITAA 1936 which enables the Commissioner to use a taxpayer's application for amendment in respect of a particular of an assessment (such as a deduction) to amend another particular (such as income) where the Commissioner is otherwise out of time to amend the taxpayer's assessment. Accordingly, the Commissioner is able to amend the taxpayer's assessment under subsection 170(5) of the ITAA 1936 outside the limited amendment period only in respect of the taxpayer's share of the additional deductions claimed by the partnership. The Commissioner cannot amend the taxpayer's assessment outside the limited amendment period to include the taxpayer's share of the omitted partnership income.

Legislative references: Income Tax Assessment Act 1936 section 170 subsection 170(1) subsection 170(5) subsection 170(7)
Other references: Explanatory Memorandum to the Taw Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005
Subject references: Self assessment Self amendment of assessments Tax assessments Assessment period