Taxation Determination

TD 2004/24

Income tax: is there a deemed assessment under section 166A of the Income Tax Assessment Act 1936 when a company lodges a 'non-taxable return' for a year of income?

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FOI status:

1. No. Section 166A of the Income Tax Assessment Act 1936 (ITAA 1936) does not operate to create a deemed assessment where the return specifies that no amount of tax is payable.

2. Note: In this determination a 'non-taxable return' means an income tax return lodged by a company that, under the full self-assessment regime, has determined and specified in its tax return it has no liability for income tax in respect of the year of income. This may occur where the company has no taxable income for the year of income or where the tax otherwise payable is extinguished by tax offsets (rebates).^[F1] Most tax offsets under provisions of the Income Tax Assessment Act 1997 (ITAA 1997) are taken to be rebates for the purposes of the ITAA 1936: sections 160ADA and 160AHA of the ITAA 1936.^[F2]

3. In subsection 6(1) of the ITAA 1936, the term 'assessment' is defined to mean the ascertainment of the amount of taxable income and of the tax payable on that taxable income.

4. For an income tax assessment to exist, the tax payable must be an amount that is capable of constituting a debt due and payable, the recovery of which can be sued for under normal legal processes: Batagol v. Commissioner of Taxation (1963) 109 CLR 243; Commissioner of Taxation v. Ryan (2000) 201 CLR 109; 2000 ATC 4079; (2000) 43 ATR 694. While zero may be a numeric integer, a zero amount cannot constitute a debt due and payable. The amount ascertained as the tax payable must be represented by a positive integer as one of the elements necessary for an assessment to exist.

5. A precondition for an assessment to be deemed to have been made under section 166A of the ITAA 1936 is for the taxpayer to specify in its tax return the amount of its taxable income and the tax payable upon that income. Where a company determines that it has no income tax liability for the year of income, no amount of income tax capable of constituting a debt due and payable can be specified in the return form. Accordingly, the lodgement of a 'non-taxable return' cannot result in a deemed assessment under section 166A of the ITAA 1936.

6. If at a later date the Commissioner issues an assessment to the company increasing its tax payable for the income year, for example, following an audit of the company's affairs, that assessment would be an original assessment and not an amended assessment. The Commissioner's power to issue the assessment would not be restricted by the time limits contained in section 170 of the ITAA 1936.

7. In a recent decision, Re BCD Technologies Pty Ltd and Commissioner of Taxation [2004] AATA 496, the Administrative Appeals Tribunal held that section 166A of the ITAA 1936 deemed an assessment to be made in a case where the tax return specified no taxable income and no tax payable. With respect, the Commissioner disagrees with the decision of the AAT in this case and has lodged an appeal against the decision to the Federal Court.

Example 1 - Inter-corporate dividend rebate

8. A company specifies in its return lodged for the income year ended 30 June 2002 that it has a taxable income of $10,000 and claims an entitlement to a rebate under subsection 46(2) of the ITAA 1936 of $3,000. The company's basic tax of $3,000 (calculated at the rate of 30%) is fully offset by the rebate amount and a deemed assessment under section 166A does not arise. As there is no assessment for that year, the Commissioner's power to issue an assessment would not be restricted by the time limits contained in section 170 of the ITAA 1936.

Example 2 - Foreign tax credit

9. A company specifies in its return lodged for the income year ended 30 June 2002 that it has a taxable income of $10,000 which it has derived from foreign sources. The company has paid $3,000 foreign tax on that income. It makes a self-determination under section 160AIA of the ITAA 1936 and pursuant to section 160AF of the ITAA 1936 it claims a foreign tax credit in the amount of $3,000. In these circumstances the company has a deemed assessment under section 166A for $3,000 tax payable (calculated at the rate of 30%) and the Commissioner's power to issue a later assessment would be subject to the time limits under section 170 of the ITAA 1936. The foreign tax credit claimed does not form part of the assessment: 160AI(2). However, the credit is applied by the Commissioner in the manner provided for by section 160AN to discharge the company's liability to pay the amount of the income tax assessment.

Date of effect

10. This Determination applies to years commencing both before and after its date of issue. However, it does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

Commissioner of Taxation
30 June 2004

Previously released as TD 2004/D2.

References

ATO references:
NO 2003/14725

Related Rulings/Determinations:

TR 92/1
TR 92/20
TR 96/12
TR 97/16
TD 93/156

Subject References:
amended assessment
assessment
credit
deemed assessment
dividend rebate
foreign tax credit
rebate
tax offset
tax payable

Legislative References:
ITAA 1936 6(1)
ITAA 1936 46(2)
ITAA 1936 160ADA
ITAA 1936 160AHA
ITAA 1936 160AF
ITAA 1936 160AI(2)
ITAA 1936 160AIA
ITAA 1936 160AN
ITAA 1936 166A
ITAA 1936 170
ITAA 1997 Div 13
TAA 1953 Pt IVAAA

Case References:
Batagol v. Commissioner of Taxation
(1963) 109 CLR 243

Other References:
Explanatory Memorandum to the Taxation Laws Amendment (No. 3) Act 1998