House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 6 - Repeal of certain unlimited periods for amending assessments

Outline of chapter

6.1 Schedule 6 to this Bill amends various taxation laws to repeal over 100 unlimited amendment periods. As result, a number of provisions which provide the Commissioner of Taxation (Commissioner) with an indefinite time to amend taxpayers' assessments are replaced with the existing amendment provisions that have certain finite periods. The removal of these unlimited amendment periods will improve certainty for taxpayers in their taxation affairs and contribute to reducing the volume of unnecessary provisions in the taxation laws.

Context of amendments

6.2 In 2004, unlimited amendment periods were considered as part of the Review of Aspects of Income Tax Self Assessment. In consideration of these provisions this report concluded that, whether or not a taxpayer had paid the correct amount of tax in a particular year, their assessment should eventually become final, unless they had deliberately sought to evade their responsibilities.

6.3 In 2005, as a consequence of this report, amendments were made to the tax law to reduce the period during which the Commissioner could amend income tax assessments to two or four years depending upon the degree of complexity of the income tax returns. However, these amendments did not address the existing unlimited amendment periods throughout the tax laws.

6.4 Subsequently, Treasury released the Review of Unlimited Amendment Periods in the Income Tax Laws ( the Review) discussion paper in which it proposed to remove the existing unlimited amendment periods. The Review identified over 100 provisions in the tax law that provided an indefinite time for the Commissioner to amend taxpayers' assessments. Consequently, the Review proposed to replace most of them with either the standard two or four-year amendment period, a specific fixed amendment period, or an amendment period that would commence only following a future contingent event.

6.5 Open public consultation was undertaken in relation to the Review and received support to eliminate the unlimited amendment periods from all the submissions. However, some submissions recommended changes to the proposed replacement amendment periods.

Summary of new law

6.6 This Schedule amends the income tax laws to repeal certain redundant unlimited amendment periods. These repeals cover situations where the general amendment provisions (under section 170 of the Income Tax Assessment Act 1936 ( ITAA 1936) provide the Commissioner with sufficient time to examine an item in an income tax return and, if necessary, amend the relevant assessment. In these circumstances, there is no reason to maintain an unlimited amendment provision for a particular item. The provisions repealed can be divided into three categories of unlimited amendment periods:

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exceptions to the operation of the general amendment provisions in subsections 170(10) and (10AA) of the ITAA 1936;

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unlimited amendment periods contained in certain specific provisions that outline the taxation treatment of a particular item that forms part of the income tax assessment; and

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those amending Acts drafted between 1985 and 2005 that contain an unlimited amendment provision due to the uncertainty surrounding the timing of the passage of the amending Act.

6.7 The vast majority of the amendments are contained in the last category. The common drafting practice that created these unlimited amendment periods ceased in 2005 as a consequence of the Review of Aspects of Income Tax Self Assessment.

6.8 By repealing these unlimited amendment periods, the general amendment provisions apply in those particular circumstances. The amendment periods for effected assessments will be either two or four years depending upon the complexity of the taxpayer's income tax assessment. However, under the general rules if there has been fraud or evasion, an unlimited amendment period continues to apply.

Comparison of key features of new law and current law

Detailed explanation of new law

6.9 The following provisions are repealed under these amendments.

Table 6.1 : Provisions that have unlimited amendment periods by the operation of subsections 170(10) and (10AA) that are repealed

[Schedule 6, items 3 and 4]

Table 6.2 : Other provisions that create unlimited amendment periods that are repealed

[Schedule 6, items 2 and 5 to 10]

Table 6.3 : A list of Acts with the generic unlimited amendment periods that are repealed

[Schedule 6, items 1 and 11 to 117]

Application and transitional provisions

6.10 Schedule 6 commences the day after this Bill receives Royal Assent.

Index

Schedule 1: Distributions to entities connected with a private company

Schedule 2: Extending the TFN withholding arrangements to closely held trusts, including family trusts

Schedule 3: Exemption of HECS-HELP benefit

Schedule 4: Deductible gift recipients

Schedule 5: Global Carbon Capture and Storage Institute Ltd

Schedule 6: Repeal of certain unlimited periods for amending assessments