In the 2020-21 Federal Budget, the Government announced an increase to the small business entity turnover threshold from $10m to $50m, allowing greater access to certain concessions including the shorter 2-year period of income tax assessment review. Broadly, this limits the Commissioner’s period to amend a return unless fraud or evasion occurred.

The Income Tax Assessment (1936 Act) Amendment (Period of Review) Regulations 2022 (the “Amending Regulations”) will amend the Income Tax Assessment (1936 Act) Regulation 2015 to exclude certain entities with “particularly complex tax affairs or significant international tax dealings” from the shortened 2-year period to a 4 year period.

The regulations were issued in draft form in August 2022 and the final version is largely unchanged, other than “providing more certainty to when the period of review would apply to entities that engaged in certain activities”.

SMEs excluded from shorter review period

Exceptions for certain taxpayers already existed that excluded entities from the 2 year review period, allowing the Commissioner to amend for 4-years after the notice of assessment is issued.

Arm’s length dealings

This exception has now been expanded to remove the requirement that one of the parties was already subject to the 4-year review period. It has also been expanded to apply – not just where the parties are not dealing at arm’s length – but also where:

• the transaction results in an amount of $200,000 or more being included in or allowable as a deduction of any of the parties, or
• the transaction involves CGT events where the sum of the proceeds from the CGT events is $200,00 or more.

Additional SMEs excluded from the 2-year review period

The list of SME exceptions to the 2-year period of review has been expanded to entities:

• where the sum of their foreign sourced assessable income, and that of their affiliates and associated entities is at least $200,000
• that are Australian foreign controlled or non-resident entities
• subject to the Diverted Profits Tax or Multinational Anti-Avoidance Law in the assessment year
• with at least 10 connected or affiliated entities
• that have claimed a Research and Development (R&D) tax offset for an income year or may be entitled to certain related deductions, recoupments, and adjustments
• that have claimed CGT relief under the following roll-over provisions:
  • Division 615 business restructure
  • Division 125 demerger
  • Subdivision 126-B companies in the same wholly owned group
• that have disregarded a capital gain/loss due to the operation of Division 855-10 (relating to foreign residents).

General tax assessment review rules

Subject to certain exceptions, the Commissioner may amend a tax assessment within 2 years of a notice of assessment for:

• an individual
• a company that is a small or medium business entity
• a person (in the capacity of a trustee of a trust estate) for a year of income if the trust is a small or medium business entity.

For other entities, the Commissioner may amend an assessment:

• within 4 years after the day on which notice of the assessment is provided to the taxpayer
• at any time if there has been fraud or evasion
• at any time to give effect to a decision on a review or appeal, or
• as a result of an objection made by the taxpayer or pending a review or appeal.

Date of effect

The amendments are now in operation, which means they apply to assessments for an income year if the assessment is made after 9 December 2022 and relates to income years starting on or after 1 July 2021.

How SW can help?

Reach out to your SW contact or the team here if you would like more information about how your tax assessment review period could be impacted.

Contributors

Tanya Bester

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