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Amendment periods live in s170 ITAA36.
Amendment Periods
Amendment periods determine how much time you have to fix an issue. Within the amendment period, you can still fix things. Outside you can’t – unless the commissioner grants you an exemption.
So in this episode, dive with Andrew Henshaw of Velocity Legal into amendment periods. Because they are the gateway to everything when you have an unresolved issue in a past tax return.
Here is what we learned but please listen in as Andrew explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Amendment Periods
Depending on what the issue is, amendment periods can work against you but they also can work for you.
Rule of thumb is that the amendment period is usually 2 years for individuals and small or medium business. And four years for large business and potential beneficiaries of a trust.
But there is a lot more to s170 ITAA36 than we made it look like, especially the reference to “any other circumstances prescribed by the regulations”.
‘Any other Circumstances’
A listener kindly pointed this out to us. Peter Glindemann, Law Interpretation Officer of the ATO, wrote the following to us in response to ep 323 where we discussed how amendment periods can save you millions when you have an unresolved Div 7A issue,
“I note that in the discussion on amendment periods in this episode no comment was made about the “any other circumstances prescribed by the regulations” paragraph of items 1, 2 and 3 of the table in subsection 170 (1) of the ITAA36.
That is, the 1936 Act Regulations set out additional circumstances in which the 2 year amendment period for an individual, company or trust does not apply (so a 4 year period applies instead).
In this regard, item 2 of regulation 14 is relevant for the example discussed in the episode of an individual taken to have received a dividend by section 109D (i.e. the Commissioner would not need to rely on the trust beneficiary exception in order for a 4 year amendment period to apply).”
End of quote. And Peter Glindemann is right. Item 2 of regulation 14 is a really important rule we need to look at.
But before we look at Item 2 Regulation 14, let’s do a quick tour of s170 ITAA36.
s170 ITAA36
s170 ITAA36 has a lot of tables, a lot of content, a lot of references to other parts of the law, a lot of ‘if’s and ‘unless’. So tedious to work through. But let’s have a go.
There are 14 subsections.
s170 (1)
Subsection (1) is the most important one for us. That is where the music is. So this is where we will spend most of our time now as well as in the interview with Andrew Henshaw.
s170 (1) just consists of a table – apart from three notes and a short introduction – there is just a table with two columns.
The first column gives you the amendment period. And the second column gives you the exceptions, qualifying what is in column one. So this column is called ‘Qualification’. And the wording in this second column is really confusing – because it uses double negatives left right and centre. And as you know a double negative is a positive.
So column 1 is the time of amendment and column two is the qualification.
This table has six items and each item gets a time of amendment in column 1 and then a qualification in column 2.
1 – Individuals – so you and I and all of us – 2 years
2 – Small or medium business companies – 2 years
3 – Small or medium business trusts – 2 years
4 – Everybody else – 4 years.
5 – Fraud or evasion – unlimited
6 – When there has been a court ruling or similar – unlimited
So these are the six items in the table of s170 (1).
Item # 1 – Individuals
Individuals usually have a 2-year amendment period.
But then comes the second column. The Qualification. The Exception. The double negative. And for item # 1 it isn’t just one exception, it is six – a to f. And these six exceptions mean that some individuals have a longer amendment period – more than two years. And these individuals are:
a – Large sole traders – 4 years per item # 4
b – Partners in large business partnerships – 4 years per # 4
c – Individual Trustees – 2 years per item # 3 –
d – Individual Beneficiaries of a passive income trust or a large business trust – 4 years per item # 4
e – An individual with a scheme – Part IVA.
f – Any other – that is what Peter Glindemann referred to: “any other circumstance prescribed by the regulations”. And this opens the door to item 2 of regulation 14.
Item # 2 – Small or Medium Business Companies
So now to item # 2 – small and medium business companies.
Companies that run a small or medium business start with 2 years. So all individuals start with two years. But for companies, only the ones running a small or medium business start with two years. The rest of the companies – so the ones with only passive income or a large business: four years.
And then there are five exceptions – a to e – which are very similar to the exceptions for individuals. So the amendment period for small and medium business companies is 2 years, except when the company is a:
a – Partner in a large business partnership
b – A corporate trustee
c – Corporate Beneficiary of a passive income trust or a large business trust
d – Part IVA – entered a scheme.
e – “in any other circumstance prescribed by the regulations”
If any of these exceptions apply, the 2-year period is out of the door.
Item # 3 – Small or Medium Business Trusts
So just as with small or medium companies – 2 years for small or medium business trusts unless there is a
1 – Large Partnership
2 – Large Business Trust or Passive Income Trust
3 – A scheme
4 – Any other circumstance prescribed by the regulations.
Item # 4 – Everybody else.
So if items 1, 2 or 3 don’t apply – 4 years.
And these amendment periods in item # 1 to 4 – two years for individuals and then small and medium business companies and trusts as well as the 4 years for everybody else – these amendment periods s170 refers to as limited amendment periods. Limited as definite end date. As opposed to the amendment periods in item #5 and # 6 which are unlimited.
Item # 5 – Fraud or evasion – a scheme.
Item # 6 – Court ruling – When you got a court ruling or similar.
So that is s170 (1) in a nutshell. And this is where most of the music is.
s170 (2)
170 (2) basically just confirms subsection 1. It just says that the commissioner can no longer amend if the limited amendment period – so the period listed in item # 1 to 4 in (1) – if that period has passed.
s170 (3) and (4)
They are about the amendment of already amended returns.
s170 (5)
(5) says that if the taxpayer applies for an extension before the end of the limited amendment period, then the Commissioner may extend the amendment period.
s170 (6)
The same applies if the taxpayer applies for a private ruling before the end of the limited amendment period and the Commissioner issues that private ruling. Then per subsection (6) the amendment period also extends.
s170 (7) and (8)
If the ATO starts an investigation before the end of the limited amendment period and that investigation is not yet finished at the end of that period, then there are two ways per (7) to extend the amendment period. The ATO can get a court order or the taxpayer can agree to an extension. And this can happen several times per (8).
s170 (9) and (9D)
And (9) says that if the assessment is based on estimates, then the ATO can amend the tax return within 4 years of getting accurate figures.
(9D) says that if a contract is voided, then you can still amend the affected tax return.
s170 (10), (10AA) and (10AB)
And then (10), (10AA) and (10AB) lists a long list of items that have an unlimited amendment period, and the most relevant one – and the only one we cover in this episode – is reimbursement agreements under s100A.
s170 (11) to (14)
And then (11) and (12) get really niche and are re international tax.
(13) seems to have disappeared. And then (14) includes a long list of definitions.
So that is s170 ITAA36 in a nutshell. So now let’s look at Item 2 Regulation 14.
Item 2 Regulation 14
Regulation 14 was issued in 2015. So is relatively new – given that s170 sits in ITAA1936 – we are talking almost 80 years.
This regulation 14 lists a number of circumstances where the amendment period is four years. And the most important one for us in this context is item 2. Item 2 is about Div 7A dividends. So Andrew Henshaw will cover this in detail in the following.
So all this was just item # 1 – individuals. 2 year amendment period unless one of the six exceptions applies.
So item 2 regulation 14 changes everything when you have a forgotten Div 7A issue. It changes the amendment period for the individual that was meant to recognise the deemed Div 7A dividend per s109D – it changes the amendment for that individual to 4 years. That is a big thing when you get a new client with massive Div 7A loans that haven’t been dealt with yet before.
Timing of Lodgement
Does timing affect the start or end of an amendment period? The short answer is: It doesn’t.
Let’s say the due date is 26 May 2023 and the return is lodged on 1 January 2024. The amendment period would start on 2 January 2024 – the day after you lodged.
And of course, that is the only thing that would make sense. If the due date was relevant, then you could shorten an amendment period by lodging late. You don’t lodge for four years and then lodge forgetting a huge chunk of Div 7A loans. And “Sorry – the amendment period has now passed.” That would make no sense.
So the only thing that makes sense is that the amendment period starts the day after you lodge.
Timing Matters for Div 7A
For other things, however, the due date does matter. For example, Division 7A and whether a complying loan agreement has been put in place.
For Div 7A you need to have fixed the Div 7A problem by the time the return is due or lodged – whatever is earlier. Otherwise, you could postpone a Div 7A by not lodging for years.
So for the start of the amendment period, the due date doesn’t matter in the slightest. The amendment period starts the day after you lodge, no matter how late or early that is. But for Div 7A itself timing does matter.
So this was a long run through the amendment periods. Please listen to this episode since Andrew Henshaw explains all this much better than we ever could.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 27 June 2022
Tax Talks spoke to Andrew Henshaw - Director at Velocity Legal - for more details.
