Elliott and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/3225-3226)
Judgment date: 9 July 2012
Date published: 5 October 2012

Summary of decision:
Outlines the ATO's response to this case which mainly concerned whether the Commissioner could amend income tax assessments more than two years after notices of the assessments were given.

Overview of facts:
The applicant was employed as a pilot by a wholly owned subsidiary of Cathay Pacific. In his income tax returns for the 2006 and 2007 income years, the applicant had disclosed amounts of foreign employment income under a label for 'Exempt foreign employment income', rather than under the label for 'Assessable foreign source income'. The applicant didn't claim the dependant spouse rebate in either return, and only provided his private health insurance details in his 2007 return. Based on those returns, notices of assessment issued for the 2006 and 2007 years on 21 May 2007 and 28 April 2008, respectively. | The Commissioner advised the applicant on 24 October 2008 that he was of the view that the applicant's employment income returned was not exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA). As a result of the decision in OABL v FC of T (2009) 175 FCR 449, the Commissioner issued amended assessments to the applicant on 27 May 2010 for both years, including as assessable income the amounts the applicant had returned as exempt foreign employment income, and specifying amounts payable for the Medicare Levy and Medicare Levy Surcharge. | Before the AAT hearing, the applicant accepted that his employment income was not exempt, and the Commissioner conceded that the applicant was entitled to the dependant spouse rebate. In relation to the application of section 170, the Commissioner contended that he was authorised by Item 5 of Regulation 20 of the Income Tax Regulations 1936 to amend the applicant's assessments within four years after notice of those assessments was given to the applicant. | Issues decided by the Administrative Appeals Tribunal | The Tribunal found that the Commissioner was not authorised to amend the applicant's assessments for the 2006 and 2007 years more than two years after notice of those assessments was given to the applicant. Item 5 of Regulation 20 did not apply to extend the amendment period to four years because, for the purposes of Item 5(a), the applicant did identify ordinary income from foreign transactions in his returns for both years. The Tribunal did not agree with the Commissioner's submission that the applicant had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns. The Tribunal found that, in the context of Regulation 20, the applicant had only to identify in his returns an amount of income from a foreign transaction, as he had, and did not have to go the further step and make a correct assessment about whether that income was exempt or assessable. | Accordingly, the Tribunal found that the applicant was liable to pay the Medicare Levy only on the amount of taxable income originally assessed to him. The Tribunal also accepted that the applicant had provided evidence that he had private health insurance from 25 May 2006, and, therefore, was not liable to pay the Medicare Levy Surcharge, and was entitled to the private health insurance tax offset, after that date.

Issues decided:
The Tribunal found that the Commissioner was not authorised to amend the applicant's assessments for the 2006 and 2007 years more than two years after notice of those assessments was given to the applicant. Item 5 of Regulation 20 did not apply to extend the amendment period to four years because, for the purposes of Item 5(a), the applicant did identify ordinary income from foreign transactions in his returns for both years. The Tribunal did not agree with the Commissioner's submission that the applicant had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns. The Tribunal found that, in the context of Regulation 20, the applicant had only to identify in his returns an amount of income from a foreign transaction, as he had, and did not have to go the further step and make a correct assessment about whether that income was exempt or assessable. Accordingly, the Tribunal found that the applicant was liable to pay the Medicare Levy only on the amount of taxable income originally assessed to him. The Tribunal also accepted that the applicant had provided evidence that he had private health insurance from 25 May 2006, and, therefore, was not liable to pay the Medicare Levy Surcharge, and was entitled to the private health insurance tax offset, after that date.

ATO view of decision:
The ATO accepts that the Tribunal's view of the interpretation of Item 5 of Regulation 20, and its application of that view to the facts in this case, were properly open to it.

Administrative treatment:
Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None

Legislative references: Acts Interpretation Act 1901 15AA 15AB Income Tax Assessment Act 1936 23AG 159J 159J(1AA) 170 170(1) 170(5) 251R 251R(2) 251S 251T Income Tax Assessment Act 1997 61-335 Legislative Instruments Act 2003 6(a) 13(1) Medicare Levy Act 1986 6 8D Income Tax Regulations 1936 Reg 20, Item 5 Income Tax Amendment Regulations 2006 (No.2)
Case references: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 73 ATR 256 2009 ATC 20-134 241 CLR 252 Overseas Aircrew Basing Ltd v FC of T (2009) 175 FCR 449 2009 ATC 20-089 [2009] FCA 7 74 ATR 850 Cooper Brookes (Wollongong) Pty Ltd v FC of T (1980) 147 CLR 297 11 ATR 949 81 ATC 4292 [1981] HCA 26 FC of T v Westraders Pty Ltd (1979) 144 CLR 55 11 ATR 24 80 ATC 4357 Project Blue Sky Inc and Ors v ABT (1998) 194 CLR 355 [1998] HCA 28 Re Bolton; Ex parte Beane (1987) 162 CLR 514 Saeed v Minister for Immigration and Citizenship (2010) 84 ALJR 507 [2010] HCA 23 241 CLR 252
Subject references: Assessments Amended assessments Exempt foreign employment income Dependent spouse rebate Medicare Levy Medicare levy Surcharge