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ATO Interpretative Decision

ATO ID 2012/44

Income Tax

Assessments for the 2003-04 and earlier nil years: effect of transfer pricing determination on the period within which an original assessment can be made
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Does paragraph 171A(2)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) give the Commissioner an unlimited period in which to make an original assessment for the taxpayer's 2003-04 income year, so as to give effect to a transfer pricing determination under section 136AD of the ITAA 1936?

Decision

Yes, the Commissioner has an unlimited period in which to make an original assessment for the taxpayer's 2003-04 income year. A transfer pricing determination under section 136AD of the ITAA 1936 triggers the application of subsection 170(9B) and paragraph 171A(2)(b) of the ITAA 1936 to give the Commissioner an unlimited period in which to make an original assessment.

Facts

Companies X and Y were part of a wholly owned group for the purposes of the loss transfer provisions under Subdivision 170-A of the Income Tax Assessment Act (ITAA 1997).

Company X incurred a tax loss and transferred part of it to Company Y. The transfer of the tax loss resulted in both companies having a 'nil year' in the 2003-04 income year for the purposes of section 171A of the ITAA 1936. As a result of a transfer pricing determination under section 136AD of the ITAA 1936 in respect of Company X, that company was not entitled to the tax loss transferred to Company Y and has taxable income for the 2003-04 income year.

Reasons for Decision

Subsection 170(9B) of the ITAA 1936 gives the Commissioner the power to amend an assessment at any time for the purpose of giving effect to a prescribed provision. The expression 'prescribed provision' is relevantly defined in subsection 170(14) of the ITAA 1936 as meaning section 136AD of the ITAA 1936. Subsection 170(9B) of the ITAA 1936 applies where the Commissioner determines that subsections 136AD(1), 136AD(2) or 136AD(3) of the ITAA 1936 should apply to the taxpayer.

For the 2003-04 and earlier income years, there was no assessment in respect of a nil liability income tax return. Subsection 171A(1) of the ITAA 1936 provides for limited periods within which the Commissioner can make an original assessment for a nil liability income tax return for the 2003-04 and earlier income years (nil years). Paragraph 171A(2)(b) of the ITAA 1936 provides in effect that subsection 171A(1) of the ITAA 1936 does not apply where, if the Commissioner had made an assessment for a nil year, the ITAA 1936 or the ITAA 1997 would not have prevented the Commissioner amending that assessment at any time. Under these circumstances the Commissioner has an unlimited period to issue an original assessment for the 2003-04 or earlier nil year.

Accordingly, the Commissioner is able to amend Company X's assessment at any time for the purpose of giving effect to the transfer pricing determination under section 136AD of the ITAA 1936.

Note: similarly paragraph 171A(2)(b) of the ITAA 1936, in conjunction with section 170-70 of the ITAA 1997, gives the Commissioner an unlimited period to make an original assessment for Company Y's 2003-04 income year. Section 170-70 of the ITAA 1997 gives the Commissioner an unlimited period to amend an assessment to disallow a deduction for a transferred amount of a tax loss, if the agreement to transfer the tax loss is ineffective because the loss company (in this case Company X) did not actually incur the loss. The term 'this Act' in paragraph 171A(2)(b) of the ITAA 1936 includes the ITAA 1997: see the definition of the term 'this Act' in subsection 6(1) of the ITAA 1936.

Date of decision:  8 May 2012

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   section 136AD
   subsection 136AD(1)
   subsection 136AD(2)
   subsection 136AD(3)
   subsection 170(9B)
   subsection 170(14)
   section 171A
   subsection 171A(1)
   paragraph 171A(2)(b)

Income Tax Assessment Act 1997
   Subdivision 170-A
   section 170-70

Keywords
Original assessments
Amendment of assessments
Transfer of losses
Transfer pricing
Transferred losses

Business Line:  Administration, Business and Personal Taxes Centre of Expertise

Date of publication:  11 May 2012

ISSN: 1445-2782

history
  Date: Version:
You are here 8 May 2012 Original statement
  22 February 2013 Updated statement
  12 December 2014 Archived

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