ATO Interpretative Decision
ATO ID 2012/3
Income Tax
Amendment of Assessments: time limits for amending assessments for an individual and the application of Regulation 20 of the Income Tax Regulations 1936FOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
When the Commissioner exercises his discretion under subsection 109RB(2) of the Income Tax Assessment Act 1936 (ITAA 1936), does item 2 of regulation 20 of Income Tax Regulations 1936 (Regulation 20) apply to increase the standard amendment period from two to four years because of the qualification in paragraph (f) of the table in subsection 170(1) of the ITAA 1936?
Decision
No. The standard two year amendment period will still apply as the Commissioner has exercised his discretion under subsection 109RB(2) of the ITAA 1936. The qualification in paragraph (f) of the table in subsection 170(1) of the ITAA 1936 does not apply because the circumstance prescribed by item 2 in the table of Regulation 20 has not been met.
Facts
A taxpayer is an individual shareholder in a private company which made a loan to a controlled trust during the relevant income year. The loan comes within section 109D of the ITAA 1936, being a loan that is treated as a dividend in the year it was made.
However, the Commissioner can exercise his discretion in section 109RB of the ITAA 1936 to disregard the operation of section 109D of the ITAA 1936. In such a case, the loan will not be treated as a dividend for the purpose of Division 7A of the ITAA 1936.
The Commissioner exercises his discretion in section 109RB of the ITAA 1936 to disregard the operation of 109D of the ITAA 1936.
Reasons for Decision
The two year amendment period in item 1 of the table in subsection 170(1) of the ITAA 1936 is subject to certain exceptions or 'qualifications' in that item. One such qualification is paragraph (f) which provides that the two year amendment period does not apply 'in any other circumstance prescribed by the regulations'.
Regulation 20 states:
Amendment of assessments for an income year
For a provision of subsection 170(1) of the Act mentioned in an item of the table, the circumstances set out in the item are prescribed.
Note: If a circumstance in an item of the table exists, the Commissioner of Taxation may amend an assessment of the taxpayer within 4 years after the day on which the Commissioner gives notice of the assessment to the taxpayer, unless a longer amendment period applies to the taxpayer.
The relevant 'item' in these circumstances is item 2 of the table in Regulation 20. This item ensures that a four year amendment period applies where all of the following exist:
- •
- a private company is taken to have paid a dividend to an entity, as described in section 109C, 109D, 109E or 109F of the Act, in the year of income mentioned in the item, and
- •
- the entity is:
- (i)
- a shareholder of the company
- (ii)
- an associate of a shareholder of the company
- (iii)
- a former shareholder of the company, or
- (iv)
- an associate of a former shareholder of the company.
The Explanatory Statement explains the operation of item 2 of Regulation 20 as follows:
Item 2 excludes taxpayers involved in transactions to which Division 7A of the ITAA 1936 applies, where there is a mismatch between the company's period of review (four years or more) and the related entity's period of review. Transactions or amounts to which Division 7A applies, are treated as dividends. These amounts include amounts paid or lent by a private company or debts that a private company forgives.
This exclusion includes related entities who are shareholders, former shareholders and associates of current and former shareholders who have a two year period of review.
Item 2 of the table in Regulation 20 is intended to apply to taxpayers involved in transactions where Division 7A of the ITAA 1936 applies, and there is a mismatch in the period of review applicable to the taxpayer and the private company involved.
Where the Commissioner exercises his discretion under subsection 109RB(2) of the ITAA 1936, Division 7A does not operate. The effect of this is that a private company is taken not have paid a particular dividend to a particular entity under that Division - subsection 109RB(5) of the ITAA 1936. Therefore not all of the elements referred to in item 2 of Regulation 20 exist and the two year amendment period in item 1 of the table in subsection 170(1) of the ITAA 1936 will apply to the taxpayer.
Date of decision: 21 November 2011Year of income: Year ended 30 June 2012
Legislative References:
Income Tax Assessment Act 1936
subsection 170(1)
Division 7A
section 109C
section 109D
section 109F
section 109RB
subsection 109RB(2)
subsection 109RB(5)
Regulation 20
Keywords
Commissioner's discretion
Assessment period
Shareholder payments
Shareholder loans
ISSN: 1445-2782