ATO Interpretative Decision
ATO ID 2012/51
Income Tax
Assessments for the 2003-04 and earlier nil years: nil liability return for the 2003-04 income year: limited period for making an original assessment for a nil year: taxpayer consented to extending the limited amendment periods for the 2003-04 and later relevant income yearsFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can the Commissioner make an original assessment for the 2003-04 income year after the limited period specified in item 1 in the table in subsection 171A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) has expired where the taxpayer has:
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- previously lodged a nil liability income tax return (nil return) for that income year and
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- consented to extending the limited amendment period (also known as the period of review) for that income year in accordance with former subsection 170(4) of the ITAA 1936?
Decision
No. The Commissioner is unable to make an original assessment for the 2003-04 income year as the limited period set out in item 1 in the table in subsection 171A(1) of the ITAA 1936 has expired. The taxpayer's consent under former subsection 170(4) of the ITAA 1936 is irrelevant.
Facts
An individual lodged a nil return for the 2003-04 income year on 1 December 2006.
It was a nil return because it showed that the taxpayer had no taxable income as the taxpayer's deductions equalled the taxpayer's assessable income.
The taxpayer did not deduct a tax loss in the 2003-04 income year.
The Commissioner commenced an investigation of the taxpayer's affairs for the 2003-04 to 2009-10 income years.
On 1 October 2010, the taxpayer consented to extending the periods of review (limited amendment periods) for assessments relating to all of the income years under review.
In February 2011, the Commissioner discovered that the taxpayer had omitted income from its income tax returns over a number of years and wished to raise an original assessment in relation to the 2003-04 income year.
Reasons for Decision
Limited period for making an original assessment for the 2003-04 nil year
Section 171A of the ITAA 1936 sets out the limited periods in which the Commissioner may make original assessments for nil returns for the 2003-04 income year and earlier income years, referred to in that section as nil years. These provisions ensure that the Commissioner does not have an unlimited period to make original assessments for the 2003-04 or earlier income years in which taxpayers have a nil tax liability.
Item 1 in the table in subsection 171A(1) of the ITAA 1936 applies if the taxpayer did not deduct a tax loss in the nil year and the taxpayer had a nil return either because:
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- they had an amount of taxable income for an income year and no tax was payable or
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- the taxpayer had no taxable income as their deductions equalled their assessable income.
Item 1 of the table in subsection 171A(1) of the ITAA 1936 applies in the present case as the taxpayer lodged a nil return for the 2003-04 income year showing that it had no taxable income and did not deduct a tax loss in that income year.
When item 1 in the table in subsection 171A(1) of the ITAA 1936 applies, the Commissioner cannot make an original assessment for the taxpayer for the nil year after the later of:
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- 31 October 2008 and
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- the period of four years beginning on the day on which the taxpayer lodged the taxpayer's return of income for the nil year.
Accordingly, in February 2011, the Commissioner could not make an original assessment including the omitted income as the four year limited period for making an original assessment for the taxpayer's 2003-04 income year had expired on 1 December 2010; that is, four years after the taxpayer lodged its nil return on 1 December 2006.
Effect of the taxpayer's consent to extending the limited amendment periods
Former subsection 170(1A) of the ITAA 1936 applied to assessments for the 2003-04 income years and provided for limited amendment periods in which the Commissioner may amend an original assessment. In some circumstances, a taxpayer is able to consent to extending a limited amendment period in relation to an original assessment. Former subsection 170(4) of the ITAA 1936 provided that, if the Commissioner has started to examine the affairs of a taxpayer in relation an assessment and the Commissioner has not completed the examination before the end of the limited amendment period, the Commissioner can request the taxpayer to extend the limited amendment period. Former subsection 170(4) of the ITAA 1936 contained similar wording and applies in relation to assessments for the 2003-04 and earlier income years. Subsection 170(7) contains similar wording to former subsection 170(4) and applies in relation to assessments for the 2004-05 and later income years.
Prior to the introduction of the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005, a nil tax advice or nil assessment was not an income tax assessment: see FC of T v. Ryan 2000 ATC 4079. Since the taxpayer lodged a nil return for the 2003-04 income year, there was no original assessment for that income year. Therefore there was no original assessment to which the limited amendment periods in former subsection 170(1A) of the ITAA 1936 could apply. The taxpayer's consent under former subsection 170(4) of the ITAA 1936 could only be relevant to a limited amendment period that applies to an original assessment.
There is no power, similar to former subsection 170(4) of the ITAA 1936 or the current subsection 170(7) of the ITAA 1936, that enables the Commissioner to seek the consent of a taxpayer to an extension of the limited period for making an original assessment under item 1 in the table in subsection 171A(1) of the ITAA 1936.
Therefore the taxpayer's consent to extending the limited amendment periods for all of the income years under review makes no difference to the expiry of the limited period within which the Commissioner can make an original assessment for the 2003-04 income year.
Date of decision: 6 June 2012Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1936
former subsection 170(4)
former subsection 170(1A)
subsection 170(7)
section 171A
subsection 171A(1)
The Act
Case References:
FC of T v Ryan
[2000] HCA 4
2000 ATC 4079
(2000) 43 ATR 694
Keywords
Original assessments
Amendment of assessments
Limited amendment period
ISSN: 1445-2782