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Ruling

Subject: General interest charges

Question 1

To the extent that supplies are treated as input taxed supplies, does the adjustment to assessable income need to be reported in the Taxpayer's (X's) income tax return for the income year/s relating to when the transactions occurred, or the income year when the amended legislation received Royal Assent?

Answer

The income year/s relating to the transactions.

Question 2

Will the interest charges that accrue in relation to any underpaid tax be either remitted in full or part?

Answer

Yes, in full.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

30 June 2010

Relevant facts and circumstances

During the construction phase of a development, X acted in accordance with the prevailing ATO view at the time as outlined in Goods and Services Tax Ruling GSTR 2008/2: development lease arrangements with government agencies (now withdrawn). Accordingly, during the construction phase of the development, X claimed all input tax credits on creditable acquisitions made in relation to the development.

X lodged income tax returns and activity statements in accordance with existing law.

On 21 March 2012 the Tax Law Amendment (2011 Measures No 9) Act 2011 (TLAA) received Royal Assent.

Due to changes in legislation concerning GST, X amended their activity statements.

As a consequence X applied for a private binding ruling regarding the adjustment to their assessable income as reported in their income tax return.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 170

Income Tax Assessment Act 1936 Section 166A

Reasons for decision

Question 1

Summary

To the extent that supplies are treated as input taxed supplies, the adjustment to assessable income needs to be reported in X's income tax return for the income year/s relating to when the transactions occurred.

Detailed reasoning

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 1997 provides the legislative basis for the amendment of an assessment.

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.

X lodged income tax returns and activity statements in accordance with existing law. Due to changes in legislation concerning GST, X amended their activity statements. As a consequence X may need to adjust their assessable income as reported in the income tax return.

If as a result of amendments to X's activity statements, there is a change in assessable income for income tax, X will need to amend the income tax returns for the years relating to when the transaction occurred, not the year the amended GST legislation received Royal Assent.

Question 2

Summary

The interest charges that accrue in relation to any underpaid tax be remitted in full.

Detailed reasoning

Where a taxpayer seeks a remission of general interest charge (GIC), the request should be considered having regard to the facts of the particular case, including the debtor's own situation and individual circumstances the guidelines contained in the following practice statements

Law Administration Practice Statement PS LA 2007/11 sets out the ATO policy on penalties and interest in the cases where taxpayers anticipate a change to the law in meeting their obligations and as a result are later found to have underpaid their tax.

Law Administration Practice Statement PS LA 2008/3, amongst other things, also explains the level of protection available to taxpayers who rely on each form of advice and guidance. Attachment A contains a quick reference summary of the level of protection provided for each form of advice and guidance.

The Assistant Treasurer announced in the Media Release No 20 on 27 January 2011 that the Government will amend the GST law to ensure that new residential premises constructed under a development leases arrangement since 3 October 2007 are treated as taxable supplies rather than input taxed supplies where the premise are sold by developers to home buyers or investors.

In the Media Release No 135 on 23 September 2009 the Assistant Treasurer confirmed that the new legislation would not apply to sales of residential premises constructed under eligible arrangement entered into prior to 27 January 2011.

The relevant GSTR 2008/2 was withdrawn as from 11 May 2011.

X's remission request is considered under the light of all information provided, including the announcement in the two Press Releases and in accordance with the fact sheets 'Goods and services tax treatment of new residential premises' and 'The ATO's approach to dealing with retrospective law changes' and paragraph 31 of the PS LA 2007/11 and Attachment A of PS LA 2008/3.

It is considered appropriate for the Commissioner to exercise his discretion in respect to the ATO view as X has acted in good faith and exercised reasonable care in relation to the circumstances surrounding their case. Accordingly X will not be liable for any interest on the shortfall that may result from an amendment to their income tax return following the amendment of their activity statements.