Amendment to the time bar for amendment of income tax assessments

(Clause 114)

Summary of proposed amendment

The Tax Administration Act 1994 is being amended to clarify that the time bar applies not only to the Commissioner amending an income tax assessment to increase the amount of tax payable, but also to the Commissioner reducing the amount of a net loss.

Application date

The amendment will apply for the 2002–03 and later income years.

Key features

The time bar in section 108 of the Tax Administration Act 1994 which applies to the Commissioner amending an assessment to increase the amount of tax payable, will be amended to ensure it also applies when the Commissioner reduces the amount of a net loss.

Background

Section 108(1) of the Tax Administration Act 1994 prevents the Commissioner amending an income tax assessment to increase the amount assessed if four years have passed since the end of the tax year in which the taxpayer provides their tax return, unless the return was fraudulent, wilfully misleading or failed to mention income of a particular nature or from a particular source.

Before the introduction of the income tax self-assessment regime in the 2002–03 income year, section 92(5) of the Tax Administration Act 1994 clarified that despite the words “so as to increase the amount assessed” in section 108(1), the time bar applied equally to prevent the Commissioner amending an assessment outside the time bar in order to reduce the amount of a net loss under a determination of loss.

Section 92(5) was repealed in its entirety as part of the introduction of the income tax self-assessment regime. A replacement provision was not enacted to confirm that a reduction in the amount of a net loss is to be treated as an increase in the amount assessed for the purposes of the time bar in section 108.

The amendment proposed in the bill corrects this oversight with effect from the application date for the repeal of section 92(5) so that the original policy intention is restored retrospectively.