Private ruling: Income tax -assessable income
Published: March 2013
Ruling period: 01 June 2009 to 30 June 2012
Date scheme commenced: 01 June 2009

Ruling: Q1: To the extent that supplies made by the taxpayer are treated as input taxed supplies, does the adjustment to assessable income need to be reported in the taxpayer's income tax return for the income year relating to when the transactions occurred, or the income year when the amended legislation received Royal Assent? | A1: In the income tax return for the income year relating to when the transactions occurred if within the time limits. | Q2: Will the Commissioner remit in full the shortfall interest charges (SIC) that accrue in relation to any underpaid income tax? | A2: Yes

Relevant facts and circumstances: During the construction stage of a development, for Goods and Services Tax (GST) purposes, the taxpayer treated the supplies in accordance with Goods and Services Tax Ruling GSTR 2008/2 - development lease arrangements with government agencies (now withdrawn) and claimed all input tax credits on creditable acquisitions made in relation to the development. After considering the Assistant Treasurer's announcement to retrospectively amend the GST law, the taxpayer made the decision that, for income tax purposes, they will continue to treat supplies of new residential properties as taxable supplies in accordance with the existing law. The taxpayer subsequently prepared their income tax return on this basis and lodged it. Subsequent to the taxpayer lodging their income tax return, the Tax Laws Amendment (2011 Measures No. 9) Bill 2011 received Royal Assent on 21 March 2012. As a result of the taxpayer correcting their activity statements to reflect the correct GST treatment of their supplies, the taxpayer understated their assessable income in their income tax return.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 40-65 and 40-70 Tax Laws Amendment (2011 Measures No. 9) Bill 2011 | Income Tax Assessment Act 1936 section 166A | Income Tax Assessment Act 1936 section 170

Reasons for decision: Summary: To the extent that supplies made by the taxpayer are treated as input taxed supplies, does the adjustment to assessable income need to be reported in the taxpayer's income tax return for the income year relating to when the transactions occurred, or the income year when the amended legislation received Royal Assent? Companies are subject to a full self assessment system under which they self assess the amount of tax they have to pay. The Commissioner does not issue a formal notice of assessment after the company has lodged its return. Instead the Commissioner is taken to have made an assessment and the return itself is deemed to be a notice of assessment of the entity's taxable or net income. Section 166A of the Income Tax Assessment Act 1936 (ITAA 1936) deems the assessment to be made on the day the return is lodged. Under self assessment the responsibility is on the taxpayer to ensure the accuracy of the information supplied in a return of income. However taxpayer's can request an amendment to correct a mistake or omission. The request for an amendment can be made to either increase or decrease their tax liability. Section 170 of the ITAA 1936 provides the legislative basis for the amendment of an assessment and including the applicable time limits. Law Administration Practice Statement PS LA 2007/11 in paragraphs 20 to 23 explains that where a law is in enacted that has a retrospective effect and a taxpayer has lodged a return based on existing law then an amendment to that return will be required where a taxpayer is found to have underpaid (or overpaid) their tax. The taxpayer had lodged their income tax return in accordance with existing law. Due to changes in legislation concerning GST the taxpayer has amended their activity statements and repaid the input tax credits that had been claimed. As a consequence the taxpayer has understated their assessable income in your income tax return. Therefore, as a result of the amendments to the taxpayer's activity statements, there is a change in assessable income for income tax for that income year and the taxpayer will need to amend that income tax return as that is the year relating to when the transaction occurred and it is still within the applicable time limits. Will the Commissioner remit in full the shortfall interest charges (SIC) that accrue in relation to any underpaid income tax? Practice Statement law Administration PS LA 2007/11 Administration treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted states as follows: 24. Generally, for taxpayers who exercise reasonable care and decide to follow the existing law, (Scenario 1) there will be no tax shortfall penalties and nil general interest charge (GIC) or shortfall interest charge (SIC) up to the date of enactment for the legislative change. In addition, taxpayers will be given a 'reasonable time' to get their affairs in order, post enactment of the measure, without incurring any GIC or SIC. 25. The 'reasonable time' will need to be determined on a measure by measure basis, having regard to the measure and a taxpayer's circumstances. 26. If taxpayers lodge on the basis of the existing law (Scenario 1 - see paragraph 31 of this practice statement) they will not be subject to tax shortfall penalties or to the GIC or SIC (up to the date of enactment of the proposed legislative measure), whether or not the proposed measure is later enacted. In addition, taxpayers will be given a reasonable time to get their affairs in order from the date of enactment of the measure, without incurring any GIC or SIC. Scenario 1 is outlined in PS LA 2007/11 as follows: Scenario 1 - Taxpayers who lodge on time in accordance with the existing law 31.If: · a taxpayer lodges a return or activity statement in accordance with existing law, and · later debit amendments or activity statement revisions are needed because of the effect of retrospective legislative changes, then: · no tax shortfall penalties will apply, and · any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the new legislative measure. In addition, the interest will be remitted for taxpayers who actively seek to appropriately amend their returns or revise their activity statements within a reasonable time after the enactment of the new law. If the taxpayer does not lodge an amendment request or revise their activity statement within a reasonable time, then full interest will apply from the date of enactment. The relevant facts pertaining to your circumstances are as follows: · the taxpayer treated supplies of residential premises as taxable supplies in accordance with GSTR 2008/2, · on 24 May 2010 the Federal Court of Australia handed down a decision in Gloxinia which determined that supplies of the kind made by you were in fact input taxed, · on 27 January 2011, the Assistant Treasurer released a consultation paper that indicated the Government's intention to retrospectively amend the GST law in relation to residential premises so that such supplies would be taxable, · the taxpayer lodged their income tax return on the basis of the existing legislation, and the Assistant Treasurer's announcement, in that the supplies were taxable, Tax Laws Amendment (2011 Measures No. 9) Bill 2011 received Royal Assent on 21 March 2012, · subsequently the Commissioner of taxation issued the taxpayer with a Private Binding Ruling which confirmed that, under the amended GST law, their supplies were in fact input taxed, and · an amendment to the relevant income tax return, to reflect the amended GST law, will result in a tax shortfall. As the taxpayer's situation is comparable to Scenario 1 in PS LA 2007/11 then: · no tax shortfall penalties will apply, · any shortfall interest charges will be remitted to nil up to 21 March 2012 when the new legislative measure was enacted, and · further shortfall interest charges will be remitted if you appropriately amend your income tax return within a 'reasonable time' after the enactment of the new law. Paragraph 25 of PS LA 2007/11 states that 'reasonable time' will need to be determined on a measure by measure basis, having regard to the measure and the taxpayer's circumstances. The relevant facts pertaining to your circumstances are as follows: · the taxpayer acted to obtain confirmation of their taxable position from the Commissioner of Taxation within six months of the date of enactment of the new legislation, · the scope of the developments that the taxpayer undertook in that income year, and the resulting transactions involved, was significant, and · the decreasing adjustment to the taxpayer's assessable income in that income year is significant. Therefore, given the above circumstances, the Commissioner considers that as the taxpayer sought to clarify their taxable position within a reasonable time, and subsequently lodge an amended income tax return within a reasonable time, the Commissioner has determined that further shortfall interest charges will also be remitted.