ATO Interpretative Decision

ATO ID 2010/42

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does the two year time limit in item 1 in the table in subsection 170(1) of the Income Tax Assessment Act 1936 (ITAA 1936) apply to prevent the Commissioner from amending an individual's assessment where:

•

the individual is a beneficiary of a trust estate

•

the trust is not a small business entity

•

the trustee of the trust estate is a company, and

•

more than two years, but less than four years have passed since the date the Commissioner gave the individual their assessment?

Decision

No. The two year time limit in item 1 in the table in subsection 170(1) of the ITAA 1936 does not apply in this case because the exception in paragraph (d) applies.

Facts

A resident individual was a beneficiary of a resident trust. The trustee of the trust was a private company.

The trust was not a small business entity within the meaning of the term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

The Commissioner gave the individual a notice of assessment for the 2005-06 income year on 22 November 2006.

More than two years (but less than four years) after the notice of assessment was given to the taxpayer, the Commissioner identified that the taxpayer made an error in their return for the 2005-06 income year and amended the return.

The taxpayer considered that the Commissioner could not amend the return as the amendment period as set out in item 1 in the table in subsection 170(1) of the ITAA 1936 had expired.

Reasons for Decision

The general rule is that the Commissioner may amend an assessment of an individual for a year of income within two years after the day on which the Commissioner gives notice of the assessment to the individual (two year period to amend): item 1 in the table in subsection 170(1) of the ITAA 1936. However, there are a number of exclusions to the general rule.

One such exclusion is where the individual is a beneficiary of a trust at any time during the income year concerned: paragraph (d) in the table in item 1 of subsection 170(1) of the ITAA 1936. This means that generally the Commissioner may amend an assessment of an individual who is a beneficiary of a trust within four years after the day on which the Commissioner gives notice of the assessment to the beneficiary (four year period to amend).

However, there are two exceptions to this exclusion where the individual is a beneficiary of a trust at any time in the year and:

•

the trust is a small business entity for that year, or

•

the trustee of the trust (in that capacity) is a full self-assessment taxpayer:

This means that the Commissioner will have a two year period to amend in this case if one of these two exceptions applies.

The first exception does not apply in this case. This is because the trust does not meet the definition of small business entity.

'Full self-assessment taxpayer' is defined in subsection 6(1) of the ITAA 1936 and includes:

(a)

a company

(b)

a trustee of a corporate unit trust

(c)

a trustee of a public trading trust

(d)

a trustee of a complying or non-complying approved deposit fund

(e)

a trustee of a complying or non-complying superannuation fund

(f)

a trustee of a pooled superannuation trust

(g)

a trustee of a FHSA fund.

The resolution of this issue turns upon the words 'in that capacity'. A company is a full self-assessment taxpayer within the definition in subsection 6(1) of the ITAA 1936. However, the company, when acting in its 'capacity' as trustee of the trust (other than those listed in categories (b) to (g) above), is not a full self-assessment taxpayer. In that capacity, the company would lodge a trust income tax return and the trustee and beneficiaries would be subject to assessment by the Commissioner under section 166 of the ITAA 1936. This means that provided all the other conditions in item 1 of the table in subsection 170(1) of the ITAA 1936 were satisfied, the Commissioner would have a four year period to amend.

This can be contrasted with the situation when the trustee is the trustee of a corporate unit trust. In this situation, the trustee lodges a company income tax return and the special rules in subsection 166A(3) of the ITAA 1936 for the assessment of full-self assessment taxpayers apply. This means that provided all the other conditions in item 1 of the table in subsection 170(1) of the ITAA 1936 were satisfied, the Commissioner would have a two year period to amend.

Year of income:  Year ended 2004-05 and later income years

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   section 166
   subsection 166A(3)
   subsection 170(1)

Other References:
Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005.

Keywords
Amendment of assessments
Self assessment
Trustees
Trusts

Siebel/TDMS Reference Number:  1-1UV8L7O

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  19 February 2010

ISSN: 1445-2782